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Legislative and Regulatory Framework > Conduct in Focus Issue 2 Article 3 Buying insurance from intermediaries who are your friends and family

Policyholder Corner - Buying insurance from intermediaries who are your friends and family

May 2021

The effective operation of the insurance market relies on the public having trust in the licensed insurance intermediaries and authorized insurers who sell insurance products and provide insurance related services. If you have a friend or a family member who is an insurance intermediary, surely it makes perfect sense to buy your insurance from them, right? After all, if you can’t trust your friends and family, who can you trust?

This makes a lot of sense and many authorized insurers appreciate this. They train their newly licensed individual insurance agents to sell to their family and friends first, because of the pre-existing relationship of trust which exists.

However, whilst there may be advantages to buying insurance through friends and family members who are insurance intermediaries, it is important for the public to be aware of the potential disadvantages of doing this, as demonstrated by some of the complaints we received.

Take the following situation as an example. An insurance agent, who is new to the industry and under pressure to meet her sales target, sells an insurance linked assurance scheme policy to her uncle. The uncle works in construction industry and his income is not regular but dependent on the projects he is hired to do. Although the uncle is unsure whether he can afford the minimum monthly premium payments, he trusts his niece and wants to help her out in her new insurance career, so he purchases the insurance policy. The uncle is able to make the premium payments for the first three years, but after that, because his construction work dries up, he cannot afford to continue to pay. He wants to surrender the policy. However, it is at this point he realizes that because of the minimum lock-up period term of his policy, if he surrenders the policy within the first ten years, he will bear a penalty for early surrender. This would result in him suffering a significant loss. The uncle complains to the IA against the insurer for including such a term in the insurance policy, but is unwilling to make any complaint against his niece for not drawing the term to his attention when he purchased it. His niece, as it happens, left the insurance industry after only 9 months and pursued a different career.

We see complaints like this from time to time. The root cause of the problem stems from the fact that the policyholder when buying the insurance from his/her family member, is not treating that family member as a professional insurance agent, but a family member. The purchase, is made out of a sense of family obligation rather than the insurance policy meeting the policyholder’s insurance needs.

We are not suggesting that you should not buy insurance from an insurance intermediary just because he or she happens to be your family member. However, we do advise that in this situation you should keep in mind the following 5 tips:

  • Ignore temporarily the fact that you are related to the insurance intermediary. Instead, treat your relative insurance intermediary like any other professional who is not your family member.
  • When you meet with the intermediary (your relative), in your mind draw a clear line between the part of the conversation where you are just catching up, and the part of the conversation when you are talking about insurance. When you are talking about insurance, forget the fact that the person is your relative. In that moment, he or she is an insurance intermediary. Treat them like one.
  • Focus on your needs and not the needs of the insurance intermediary to whom you are related.
  • Ask questions. Don’t hold back. It is the insurance intermediary’s job to answer them, irrespective of whether you are related. Remember, if the insurance intermediary does not carry out his or her role with care, skill and diligence, he or she may breach the IA’s Codes of Conduct, guidelines or other applicable regulations. The IA will not refrain from taking disciplinary action just because of the intermediary is a family member of the policyholder.
  • MOST IMPORTANT: Ask yourself: would you be buying this insurance policy if it wasn’t your relative selling it to you? If the answer is “no”, do not go through with the purchase.