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  • Review of Economics and Statistics

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

By: Santosh Anagol, Shawn Cole and Shayak Sarkar
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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

Advice; Customers; Insurance; Service Operations; Motivation And Incentives; Ethics; India

Citation

Anagol, Santosh, Shawn Cole, and Shayak Sarkar. "Understanding the Advice of Commissions-Motivated Agents: Evidence from the Indian Life Insurance Market." Review of Economics and Statistics 99, no. 1 (March 2017).
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About The Author

Shawn A. Cole

Finance
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More from the Authors
  • 'Mobile'izing Agricultural Advice: Technology Adoption, Diffusion and Sustainability By: Shawn A. Cole and A. Nilesh Fernando
  • Handbook on Using Administrative Data for Research and Evidence-based Policy By: Shawn Cole, Iqbal Dhaliwal, Anja Sautmann and Lars Vilhuber
  • Long-Run Returns to Impact Investing in Emerging Markets and Developing Economies By: Shawn Cole, Martin Melecky, Florian Mölders and Tristan Reed
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