Study on Transaction of Intermediary Business in Property Insurance Market

Transcription

1 Study on Transaction of Intermediary Business in Property Insurance Market LI Xueshuang School of Economics and Management, Wuhan University, P. R. China Abstract:The problem of transaction of the intermediary business is very prominent in the current property insurance market, and it has brought great harm to long-term and sound development of property insurance sector in China. The problem of bargain of the intermediary business is not only caused by internal reason of the insurance company, but also is driven by exterior strength. To eliminate this market activity violating regulations, we shall adopt the administration structure for perfecting the property insurance company, confirm the legal status of the insurance marketing personnel, regulating agency relation between the con-current agent and insurance company, strengthen supervision for market behavior and solvency and take up other relevant measures. Key Words: Property insurance; Intermediary business; Reason; Resolution 1 Introduction In recent years, property insurance sector has grown rapidly in China. However, there are some fundamental problems. One problem is that the property insurance branches absorb intermediary business through great service charge, great return and other means violating regulation, this is the buying insurance premium or business of buying market called in the property insurance sector. In some regions where there is fierce property insurance business, the property insurance branches transacting the intermediary business with paying service charge and return in great ratio. The ratio of service charge greatly rises at the quarter end and month end when the insurance premium task is examined. There is the daily quotation of service charge similar to the foreign exchange quotation in the property insurance market, and the quotation records the service charge ratios of different property insurance organizations in details and prevails among the insurance agencies and insurance marketing personnel. The diverse business of the insurance branches that pay service charge in great ratio will greatly increase in short term because of the price gap of service charge; however, the diverse business of the other insurance branches that pay service charge in lower ratio will greatly shrink. According to prudential estimate, the intermediary business absorbed through high service charge, high return and other means violating regulation will account for 1/5 of the total property insurance business in every year, and this business mainly is mainly the diverse business, such as vehicle service and so on. The extremely high service charge disturbs the normal market order, increases operation risk of the insurance company, reduces the solvency of insurance company, and harms the legal interest of the insured and the insurant. If we do not take up pertinent measures and let it develops, then it will bring great harm to long-term and sound development of the property insurance business. 2 Internal reason for the property insurance company to transact the intermediary business 2.1 The examination system focusing on insurance premium scale of the property insurance company is the internal reason of transaction of intermediary business The operation and examination system of some property insurance companies is not reasonable and excessively seeks insurance premium scale and causes the branches to extend scale without considering cost and profit. Although the operation and examination indicators of most property insurance companies uniformly transfer from seeking insurance premium scale purely to focusing on quality, structure and profit, the 341

2 weight of insurance premium is still to heavy in their examination systems; although there are the multi-level and multi-indicator examination system, the superior company still focuses on the insurance premium during actual examination, even simply takes the insurance premium task examination as achievement examination. The pressure of insurance premium is the main reason for the branches to transact intermediary business The great value difference between the legal entity and authorized operator leads to the distorted operation goal. Although some of head offices of property insurance put forward the operation goal of profit maximization, all of property insurance companies execute charge allocation system toward the branches that draw more charges only through extending the business scale. The material gains are the motor to determine standard of conduct. In front of great charge allure, benefit examination is weak. The great value difference between the legal entity and authorized operator leads to the operation goal to be sought by the legal entity is weakened level by level, and the goal is even distorted to be the insurance premium scale in the elementary units The elementary operation branches reaction From the prospective of elementary operation branches, the rights of insurance check, survey and claim settlement are controlled by the superior company and there is uncertainty of risk time and amount, thus the profit goal is not determined by them in great degree. Therefore, the elementary operation branches generally will adopt the insurance premium goal that is easily operated and actively grasped by them to be the main working goal. 2.2 The property insurance company does not make enough effort to develop and generalize the new products, insurance resources are wasted seriously and there is gap for completing task. Innovation is the dynamic source for enterprise development. Presently, there is not enough product innovation in domestic property insurance market. The insurance products supplied by the different companies are not only similar in rate structure, clause design and service mode, but also similar in marketing strategy, marketing means and channels; the developed insurances are not generalized in sufficient efforts, and new insurance business growth points are not formed. Thus, business growth still mainly relies on vehicle insurance, enterprise property insurance, engineering insurance, liability insurance, casualty insurance, freight insurance and other traditional insurance products. In the primary stage of market, the great homogeneity of products makes business competition to be price competition, thus different companies adopt the strategy of competing rate, return, service charge and expense and other low price competition strategy, insurance resources are greatly wasted. However, the insurance premium examination task of the elementary operation branches increases every year, thus there is the gap of insurance premium task. 2.3 The marketing personnel do not have reasonable knowledge structure; the direct selling and business extending force are weak. Presently, the staff structure of some property insurance companies is out of balance, the marketing personnel are not enough. Taking Hubei Province as an example, the average age of formal staff of some of insurance companies founded in early stage is more than 40 years old. A branch company of 30 persons only less than 10 persons can really extend business; the business personnel of some companies work individually and the fine team work cannot be achieved; the front personnel are lack of knowledge of non-vehicle insurance products, do not have reasonable knowledge structure and obvious team superiority. It is difficult to achieve the insurance premium task given by the superior company only relying on the direct selling force. The insurance company does not enough directing selling and business extending force, thus new market and new business field cannot be developed well, new insurances cannot be generalized well and competition is concentrated in the traditional business fields. With the task examination pressure, the insurance company only has two ways to make up the gap of direct selling. One is to build the marketing system to drive business growth through recruiting personnel, training and excitation. This way is a long-term system, but it requires inputting a great deal of human resource, material and effort, it requires the insurance company has fairly fine management level and its effect is slow, the circle is long and elimination rate is great. The other way is to buy insurance premium. Building marketing 342

3 system has slow effect and long circle, thus the insurance companies usually adopt the means of exchanging great service charge and great return for insurance premium that is convenient and high-efficient to reach the task in fastest speed at the end of quarter or month that is critical for task examination. 3 External reasons for the property insurance company to transact the intermediary business 3.1 A great deal of insurance business resources are held by the insurance intermediary agents. In the business resource of property insurance premium income, the insurance premium income of the insurance intermediary agents accounts for 60% of the gross insurance premium income. The insurance premium of the individual agent accounts for 58%, direct selling business accounts for about 40%. The agent service of insurance intermediary agents (especially individual agents) has become the main source of property insurance business, and becomes an important force that can affect the insurance market. The insured of some disperse business (such as vehicle insurance business) are lack of the insurance knowledge and time and energy are not allowed and so on, they assign the insurance business to be transacted by other persons that can try more rate discount more favorable than the insured to buy insurance directly for the insured. Presently, there is the binding consumption chain service mode of insurance plus non-insurance service in the vehicle insurance market. The characteristics include: the 4S automobile outlet controls the new vehicles and insurance resources of brand automobile. According to statistics, there are more than 100 4S outlets in Wuhan and they grasp about clients; the vehicle repair shops grasp a lot of client resource through club, favorable conditions for repair and maintenance. There are repair shops in Wuhan, a medium-sized automobile repair shop can grasp about nearly 800 fixed clients; the agent company and individual agent control some disperse business. There channels control a great of business resources through controlling client and became the bargaining counters for the property insurance companies. 3.2 Interest incentive system promotes the behavior of pay bill. According to internal management regulations of different property insurance companies, the service charge of insurance agency business basically is about 8-15% and is greatly lower than the market level. If an insurance company raises the payment ratio of service charge, the market information spreads rapidly, and then nearly all of participants in market can grasp the information. With effect of interest incentive system, the so-called pay bill behavior occurs in the insurance market. Pay bill includes four types: the first is that most of marketing personnel (even includes some of direct selling personnel) sell their agency business to the insurance company giving the highest price at high price for realizing personal profit maximization. The second is that many marketing personnel forms interest alliance through resource integration (a great deal of marketing personnel forms interest alliance, integrate the disperse and small-scale insurance to be a large-scale insurance premium. The unfavorable conditions of single marketing personnel with small-scale insurance premium are changed. Sometimes, the insurance premium scale is great, the participants can include several hundred person.), the accumulated insurance premium can be used as the bargaining counter, after making enquiries for several times and according to the principle that higher price is superior, the insurance premium will be sold to the insurance company at high price. The third is that some con-current and special agents cook the business and bid up the service charge, even some intermediary agents buy the direct selling business from the marketing personnel of the insurance company at low price and then sell it to the insurance company at high price. The fourth is that some companies that can achieve task in better conditions or the companies that cannot achieve task sell business to earn high service charge. 3.3 The recruitment and employment relationship of the marketing personnel is not clear; management of intermediary business is confused. Definition of the recruitment and employment of the marketing personnel is a great problem puzzles the insurance sector. Status and legal positioning of the marketing personnel are not clear, thus they have not any sense of attribution and they are lack of cohesiveness for their company and there is a great 343

4 deal of short-term behaviors. They have not any fidelity for the company, interest is the only guide for their behavior, and thus transaction of insurance premium is not avoided. The insurance companies do not have any punishment measures for short-term behavior. Some of marketing personnel even have working No. of all of companies in market, he will sell the business to the company offering the highest price. The insurance intermediary agents have very important effect for perfecting the market organization system and promoting development of insurance sector. However, the insurance intermediary agents develop in a short time in China; there has not been an intermediary agent team that has professional technique and vocational quality in the insurance market. In addition, the unreasonable market structure leads to the insurance intermediary agent to develop business difficultly, thus the insurance intermediary agents also hope to gain high profit through transacting insurance premium under pressure of survival. Therefore, transacting insurance premium seems to be a multi-win pattern in appearance. From the prospective of the insurance company, the insurance company completes the task given by the superior company, the related personnel gain charge and award, the person in-charge gets praise or promotion by the superior leader; the intermediary agents and marketing personnel gain high service charge; the insured can gain favorable price conditions, even the agent pay some of return. This is the fundament reason for transacting insurance premium to exist in long term. 4 Harm for the property insurance company to transact the intermediary business In multi-win pattern in appearance, there is great harm for transacting intermediary business in fact. The property insurance market does not become greater, insurance resource is wasted, the operation cost is raised, development rate is slow, and operation benefit of company is reduced. In fact, these businesses only flow according to the interest-seeking principle in the market. 4.1 The behaviors violating law and regulations increase and the market are disturbed. High service charge and high return finally be transacted through behaviors violating law and regulations. The behaviors include: the first is to make false facts in operation and to pay agency through false approve the bill to return insurance premium, reporting receivable insurance premium in false manner, deducting insurance premium, canceling the bill, burying the bill, sign the insurance policy that is not same in public and secret, making false compensation case, false listing and listing expenses freely to service charge or give the insurance premium brokerage not stipulated in the insurance contract to the insured and insurant; the second is not to list service charge according to facts; the third is that the insurance intermediary agent retain and appropriate the insurance premium revenue; the fourth is that the vehicle business does not execute the automobile insurance rate stipulated in the contract and is discounted freely. 7 discount is usually is taken as the standard rate of vehicle insurance. 4.2 The stability of team and business is affected. The high amount of price difference makes some of direct selling personnel to sell the insurance renewal business to other companies, thus the business insurance renewal rate of different companies are very low and business development is not stable. The marketing personnel have not any fidelity, and sell to the business to the company that offers the highest price. 4.3 The insurance premium task of the insurance company is in vicious circle. After the insurance company purchase the insurance premium and complete the task of last year, the task gap of next year is greater, thus it has to buy more insurance premium with greater price. 5 Suggestions and countermeasures for governing transaction of intermediary business in property insurance market 5.1 The governing structure of the property insurance company shall be perfected and the operation and examination system shall be improved. 344

5 The perfect corporate governing structure is helpful to improve the market behavior of the company. For the transacting insurance premium behavior of the branches that does not consider cost and benefit, the property insurance company shall make resolution from the following respects: the first is to speed up the process of transformation in line with stock system for the insurance operation entity, establish the shareholders conference, board of directors, board of supervisors, manager level and other internal effective balancing mechanism, establish and perfect effective incentive and restriction mechanism, hook the personal interest of the managers to the company interest, make shareholder goal to be the goal of the managers, eliminate the benefit barrier for exciting the managers; the second is to transfer the operation concept only seeking insurance premium scale, abide by the policy of speed, benefit, faithfulness, standard, develops along the route of integrating speed, benefit with quality, carry out them in each chain of management and operation; the third is to change the current achieve examination method and income distribution system in elementary branches, realize transformation from current insurance premium scale pattern to operation benefit patter; for charge distribution, the rating charge policy according to benefit shall be executed; to increase weights of operation benefit, insurance structure, operation and management level, system execution in the charge distribution, change the examination mode that only considers business scale for charge distribution; the fourth is to standardize the market behavior of the branches and pay service charge in reasonable and legal manner; the fifth is to perfect the internal control system, strengthen internal auditing system, strengthen punishment of the behavior violating law and regulation by the branches, increase the cost of operation of violating law and make the cost to be greater than the benefit from operation violating law and regulation. 5.2 Clarify the legal position of the insurance marketing personnel In current management pattern, the issue that whether there is labor relationship or agency relationship between the insurance marketing personnel and the insurance company is still not clarified, and there is no clear legal position of the insurance marketing personnel. To make the relationship between the marketing personnel and the company clear, the following measures can be taken up: the first is to clarify the legal position of the insurance marketing personnel. The insurance marketing personnel can be stipulated to be the special personnel for taking up after-sale service of the insurance products; they can be the employee of the insurance company and insurance agency, or can be employer or employee of individual exclusive agency enterprise through legal registry. The insurance company can sell its own insurance products through its marketing personnel, and also can sell its insurance products through the insurance agency and individual agent; the second is to require that if the insurance company sells its insurance products with its own marketing personnel, the insurance company shall sign the labor contract with the marketing personnel according to the Labor Law of PRC for clarifying the rights and obligations of the two parties and supplying necessary security according to law; the third is to strengthen management and training for the marketing personnel, and establish the faithfulness examination system for the marketing personnel. 5.3 The behaviors of the insurance intermediary agent shall be strictly normalized. Moral education and vocational quality education shall be strengthened for the insurance agent, and the professional image shall be set up in the trade. The black list system shall be established and perfected. The insurance marketing personnel that seriously violate regulations shall be firmly eliminated from the insurance agent team. In addition, the insurance knowledge propaganda shall be strengthened to help the consumers to understand the role of the insurance intermediary agent, achieve knowledge of purchase insurance, improve distinguishing ability, help them not to believe wrong advice blindly, reduce opportunity to be deceived and enhance the confidence of the insurance intermediary agent and promote sound development of the insurance intermediary market. 5.4 Regulate the agency relationship between the con-current agent and insurance company, change multi-agent agency to be exclusive agency. Presently, cooperation between the con-current agent and the insurance company is lack of strategic and long-term planning, most of them maintain relationship only relying on service charge, the cooperation level is fairly low, the foundation is not solid and the stability and sustainability of cooperation is poor. With the pressure of scale expansion, some of insurance companies do not consider cost and quality, thus they provide opportunity for the con-current agent to cook the insurance company; 345

6 the dominant status of the insurer is lost, and it has to accept the rising price of the con-current agents. Even some con-current agents take up the bidding manner to make the insurance company to combat mutually and gain profit in this combat. One of effective way to change this condition is to regulate the current agency relationship policy and recover the exclusive agency business of the con-current agents, make one con-current agent to only act as the agent for one property insurance company and one life insurance Company. Only in this way, the foundation of cooperation will be solid, the two parties involved will make long-term planning and will not seek the short-term interest only and the strategic cooperation will be profound. The insurance company shall strengthen effective management for the con-current agent, thus the behavior violating regulation will be eliminated, the operation cost of insurance sector will be reduced, realize sustainable and sound development of business and the two parties can make sustainable and long-term strategic cooperation on the equal and mutual benefit basis. 5.5 Strengthen supervision for market behavior and solvency The insurance supervision organ shall strengthen supervision for transaction of intermediary business from the following respects: the first is to strengthen supervision for the insurance property legal organization. Presently, most of behaviors violating regulations in market occur in the elementary companies and the root lies in the superior organizations. The legal organizations shall be guided to make business plan according to fact, be guided to transfer operation concept, change the trends of focus on business and neglect management and focus on scale and neglect benefit, the scientific and reasonable business flow shall be establish, internal auditing shall be strengthened and auditing and supervision in all-process shall be achieved; the second is to strengthen normalization and check for the property insurance market, focus on cracking down falsification in operation, payment service charge violating regulation and payment of return; the third is to introduce the classified supervision system, focus on the market conditions closely, focus on cracking down the behavior of absorbing intermediary business with high service charge, strengthen punishment for the managers and person directly liable and increase the cost of operation violating regulation; the fourth is to normalize the insurance companies and strengthen check for the intermediary organization simultaneously for achieving effective results during executing the measures of normalizing the standard; the fifth is to strengthen supervision for solvency of the insurance company, gradually establish the risk pre-warning system that centers on solvency, establish the solvency pre-warning system that takes financial index analysis means, take up the cash flow test and other dynamic solvency test methods to prevent risk in the cradle and reduce and eliminate the bad competition behavior of insurance company without considering cost; the sixth is to strengthen guide for the trade association, positively support self-restriction by the trade, structure the supervision system that integrates internal control of enterprise, self-restriction by trade, governmental supervision and social supervision. Reference [1] Pei Guang. Study on Competitiveness of Insurance Sector in China [M]. Beijing, China Finance Press, 2002; [2] Zhang Xiangxian. Innovation and Development of Insurance Sector [M]. Shenzhen: The Haitian Publishing House, 2003; [3] Zhou Yanli, Theory and Practice of Motor Vehicle Insurance [M]. Beijing, China Finance Press, [4]The Yearbook of Insurance 2006,China Statistics Press,Beijing,2006 [5]Shi zhongliang,guo xuhong, On China's Insurance Regulatory System Perfection after the end of WTO Transitional Period, Journal of Jiangxi University of Finance and Economics, 4th Schedule, The author can be contacted from 346