Ever since I can recall, there has been controversy surrounding commission payments to sales professionals in the insurance industry. A few years ago, one state even went so far as to propose that commission payments to sales professionals be disclosed to their clients! Being a consumer of life insurance and annuity products, and never having sold insurance, one might assume that I’d be in support of such proposed regulation.
I am not.
First of all, let’s realize that if insurance companies want to sell their products, they need to incentivize their distribution to do so. Most life insurance companies do not sell their products directly to consumers over the telephone or Internet; the products are typically complex enough that you need to meet with prospects face-to-face to ensure product understanding. That means you cannot bypass the incentive; you need warm bodies in order to move your product.
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But how can one incentivize distribution to sell? Cookies? No? Bartering? I don’t think so. Paying commissions to sales professionals is the best way to incent them to sell. Some would argue and claim there are other ways sales professionals can get paid, and that these alternative payment forms are superior. I’m not going to argue the merits or pitfalls of being a fee-based, fee-only or commission-paid salesperson, as that is beyond the scope of this article. I’m just going to say that although these alternative payment forms are different, it does not make them better.