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Sales Practices
All 50 U.S. states were engaged in major litigation over sales practices violations with a client of Interchange, a very large financial services company. The client’s sales representatives were accused of selling, on a massive scale, life insurance and annuity products that were clearly not suitable for particular customers. The client had admitted the error of its ways and was in the process of paying claims that would amount to several billion dollars. But, as part of its rehabilitation, company management was required to undertake a major review of management processes, sales practices, and underwriting protocols to convince insurance regulators that they had repaired their sales practices and had mechanisms in place to prevent such abuses from reoccurring. Millions of dollars had been spent on management consultants, reports, field reviews of agents’ behaviors, reviews of compensation structures, seminars and training programs for sales staff, and all the usual sticks and carrots, but nothing had worked sufficiently well, and regulators were growing impatient.
In the course of its inquiry with the client, Interchange learned that the field underwriter (a.k.a. the life insurance agent) had always performed the required suitability testing, to make sure the new policy fit the needs of the customer. However, the field underwriter had just spent much time and effort convincing the customer that this was the perfect product for them. Moreover, most of the agent’s commission was taken in the first year, before any problems would normally come to light. For both reasons they had a large personal stake in deciding that their eager client was indeed entirely suitable. Clearly, even with the best will in the world, the cognitive dissonance would always work in favor of a verdict of suitability.
So, all the solutions tried to date had been aimed at addressing this problem through protocols and SOPs, training, threats, incentives, and so on, all to no avail—and all, as it turned out, beside the point. For, after diving deeper into the situation with the client, Interchange discovered the easy solution lay hidden in plain sight. It had always been normal protocol that for every new policy, as one of the final steps in the underwriting process, a thirty-minute phone interview to verify health and other information would be conducted by the Home Office underwriter—an objective third party with nothing at stake beyond ensuring that they had a live and healthy client.
By merely taking an additional three minutes to ask four additional questions—the questions used to determine suitability—the Home Office underwriter could perform the suitability test over the phone, and the testing could now be taken out of the hands of the agent altogether. This immediately resolved the issue, and the regulators quickly reviewed and blessed the new protocols. Since that minimalist intervention, any infractions have been so trivial that they have not attracted complaints from any state regulator, and the new protocol has become standard industry practice.