Working Paper | HBS Working Paper Series | 2015

Understanding the Advice of Commissions-Motivated Agents: Evidence from the Indian Life Insurance Market

by Santosh Anagol, Shawn Cole and Shayak Sarkar

Abstract

We conduct a series of field experiments to evaluate the quality of advice provided by life insurance agents in India. Agents overwhelmingly recommend unsuitable, strictly dominated products, which provide high commissions to the agent. Agents cater to the beliefs of uninformed consumers, even when those beliefs are wrong. We also find that agents appear to focus on maximizing the amount of premiums (and therefore commissions) that customers pay, as opposed to focusing on how much insurance coverage customers need. A natural experiment requiring disclosure of commissions for a specific product results in agents recommending alternative products with high commissions but no disclosure requirement. A follow-up agent survey sheds light on the extent to which poor advice reflects both the commission incentives as well as agents' limited product knowledge.

Keywords: Customers; Insurance; Product; Service Operations; Agency Theory; Sales; Motivation and Incentives; Competition; Value; Insurance Industry; India;

Citation:

Anagol, Santosh, Shawn Cole, and Shayak Sarkar. "Understanding the Advice of Commissions-Motivated Agents: Evidence from the Indian Life Insurance Market." Harvard Business School Working Paper, No. 12-055, January 2012. (Revised October 2015.)