[Photo: President and CEO of Manulife, and Life Insurance Association president, Darren Thomson.]

By Lorna Tan, Senior Correspondent

LIFE insurers have been warned to stamp out questionable recruitment practices - a move that is set to bring direct benefits to policyholders.

One key problem that the Life Insurance Association (LIA) aims to crack down on, by imposing stern penalties, is the mass poaching of rival agents.

If life agents switch employers, there is greater potential risk of policy 'churning'.

This is when clients lose money after being persuaded to surrender a policy and use the proceeds to buy a new plan with another firm.

The code warns life insurers against making unsolicited approaches directly to agents of other member firms by phone, SMS, e-mail or mailer on a mass communication basis.

As part of the drive to clamp down on churning, the new code also states that all LIA member firms should carry out reference checks, share information on churning and impose sanctions such as commission claw-backs if churning occurs.

LIA president Darren Thomson said: 'There is no doubt to us that if recruitment practices result in policies being churned, they cannot be condoned whatsoever.'

One insurance agency manager, who declined to be named, applauded the move to crack down on churning.

'When agents leave for an extra dollar, clients will suffer if they trust the agent so much that they act on his wrongful advice to surrender their plans with the intention of buying the same policies at the firm that their agent has joined.'

LIA said the penalties it will impose if an insurer falls short of its new recruitment standards include censure, suspension from LIA meetings or outright expulsion from the association.

The new code on the 'principles and practices on recruitment of tied agents' was issued by LIA last week.

Explaining the rationale behind the new code, Mr Thomson said the professional recruitment and orderly movement of agents tied to insurers is an acknowledged principle, so LIA wanted to formalise this as an industry undertaking.

Another recruitment practice that is frowned upon is the structure of some 'buy-over' packages to entice agents from rival firms to cross over.

And the new code states that 'the compensation offered to industry-experienced agents should not be in the form of a large, lump-sum payment that is not commensurate with the individual's qualifications, track record and experience'.

In recent months, some insurers have been aggressively recruiting agents to expand their agency forces.

For instance, AIA expected to recruit more than 1,000 new agents this year. And British insurer Prudential Assurance had wanted to grow its agency strength to 4,500 by December, from 3,500 at the start of this year.

Yesterday, Prudential's chief distribution officer Patrick Teow said it now expects to cross the 4,000-agent mark by the end of the year. The insurer has seen a net growth of 305 agents so far this year.

Prudential's aggressive recruitment tactics were highlighted by The Straits Times in April.

Rival insurers were unhappy about Prudential offering a 'buy-over' package that includes an up-front lump-sum payment.

Prudential also allegedly adopted tactics that included e-mail messages and direct calls to rival agents, as well as dropping off recruitment letters at agency offices located at rival insurers' premises.

Other practices insurers are to avoid include engaging in communication that demeans or belittles member firms and exploiting another member firm's situation.

The new code states that there should be clear disclosure of the name of the firm that is doing the recruitment, and that recruitment strategies should be based on the firm's merits.

This article was first published in The Straits Times.