This proposal is on the factors that affect labour turnover of Life insurance Agents in Old Mutual Life Assurance Company Kenya. A Life insurance company relies on a stable Agency force to sell and service its Life insurance products to enable it make profit from the Life policy. The exit of an Agent affects the servicing of the policies sold with negative impact on Company’s profitability and investable fund for the nation’s economic development. Therefore, the objective of this study is to identify the factors, find out how and to what extent they affect labour turnover of Agents in Old Mutual Life Assurance Company Kenya. It will also seek to find solution to the problem and make recommendations. This study will benefit the management and Agency Managers of the company, other Life Insurance companies, current and potential investors in Life insurance companies as well as government and its Agencies.
The study will make use of descriptive research design which will involve field survey of targeted respondents of Old Mutual Life Assurance Company Kenya. The target population will be the regional managers, sales managers and the Agents at its branches in Nairobi numbering about 200. A sample of 15% will be taken using simple random sampling technique. The data will be collected by the use of questionnaire and analyzed using descriptive statistics which will include tables, charts, diagrams and frequency distribution measurements such as mean, mode and median.
OPERATIONAL DEFINITION OF TERMS
Life Insurance Life Assurance is an aspect of Financial Planning which provides for the payment of a capital sum to the dependants of a policy owner on his death or to the policy owner on survival to policy expiration, in consideration of the payment of a smaller, often regular, amount to the Life office
Life Insurance Sales Agent Life insurance agents specialize in selling policies that pay beneficiaries when a policyholder dies. They also sell other varieties of Life insurance products such as annuities that promise a retirement income, Health insurance and short-term and long-term-disability insurance policies. Agents may specialize in any one of these products, or function as generalists, providing multiple products to a single customer. They earn commission and other benefits for their effort.
TABLE OF CONTENTS
LIST OF TABLES
LIST OF FIGURES
ABBREVIATIONS AND ACRONYMS
LIMRA – Life Insurance Marketing and Research Association
AKI – Association of Kenya Insurers
IIAA- Independent insurance Agents of America
COP – Certificate of Proficiency
OMLAC – Old Mutual Life Assurance Company
CHAPTER ONE: INTRODUCTION
This chapter will focus on background of the study, statement of the problem, objectives of the study, the hypothesis or research questions, significance, scope and limitation of the study.
1.1 Background to the study
Life Insurance is an aspect of Personal Financial Planning which enables somebody to provide for his future financial needs at old age and that of his or her dependants in the event of unforeseen circumstances. Such unforeseen circumstances are premature death, Total Permanent disability resulting from Accident or Critical illnesses which may reduce or terminate a person’s income earning capacity.
The risk of premature death is one of the major personal risks faced by most individuals. The financial consequences resulting from the death of a breadwinner before adequate resources have been established for dependents can be severe. Life insurance is a major source of financial protection against premature death.
There are three main sources of life insurance protection which are individually purchased, Employer-sponsored and Government sponsored life insurance coverage. The dependable source is the individually purchased Life insurance protection because the other two may not be available to an individual.
Life Assurance is a service premised on a promise to pay a certain amount of money in future in the event of the occurrence of a stated contingency which usually depends on the duration of human Life. Hence, the best form of selling this service is one – on – one personal selling through a Sales Person traditionally called an Agent.
One major problem facing Life insurance Companies in selling their products and hence, profitability is the high rate of labour turnover of their Agents. A Life insurance company relies on a stable Agency force to sell its Life insurance products. These products are usually long tern going for a minimum of five years in duration. The profitability of a policy to the Life insurance Company depends on the consistent servicing of that policy by the Agent. When an Agent leaves an insurance Company when the policies he sold are still in their early years, such policies will no longer be serviced. Hence, the Company will lose in terms of future in-flow of investible funds, lost of commission that has been paid in advance to the Agent and payment of surrender values arising from lapsed policies.
This situation threatens the survival of Life insurance companies and it has attracted the attention of some writers and researchers. According to Leverett et al (1977), the death of the independent Agency system as it exists today has been predicted for several years. Increased competition from newer sources, such as the entrance of Life insurance companies into the property-liability field, as well as traditional competition from the direct writers of insurance, tends to reinforce the foundation for such a prophesy. The attraction and retention of new agents into the independent agency system is vital to the continued successful existence of that system.
A number of studies have indicated that the retention rate for agents recruited into the Life insurance industry is very low. According to one study, the two year and five year retention rates for 13 large life insurers in the United States were 39 and 13 percent respectively. Furthermore, the retention rate for smaller life insurers was found to be even less than for their larger counterparts. These figures are not totally unexpected given the lack or inadequacy of training and educational programs offered to new life insurance recruits.
LIMRA (2009) points out that, it has been of great concern to many managers, the fact that only 5% of sales representatives who join the industry remain in the industry and become successful sales representatives. Out of the 5% only 2% become high achievers in the industry. Despite the fact that those on commissions earn more than majority of the salaried people, it has remained a very challenging field especially for the young people from college and university who would wish to earn good money easily and fast.
Burand (2010) notes that over time, agents retention in the life insurance industry remains a perennial challenge for companies operating within the traditional career agency system. According to LIMRA (2010), 68% of agents leave companies within their first two years.
Many managers presuppose that retention rates correspond with a company’s effectiveness in building its sales and Organization in general. Company “bottom lines” would benefit substantially from increased retention rates.
1.1.1 Background to the Scope of Study
Old Mutual Life Assurance Kenya belongs to an International long-term savings, protection and investment Group.
The Group provides life assurance, asset management, banking and general insurance in 33 countries (Africa, Europe, the Americas and Asia). It has over 15 million customers and approximately 55 000 employees. The vision of the group is to be their customers’ most trusted partner – passionate about helping them achieve their lifetime financial goals. The group was founded in 1845 and has expanded from their origins in South Africa in the last decade through organic growth and strategic acquisitions. It is listed in the UK, South Africa and three other African exchanges.
Old Mutual Kenya (OMK) started doing business in Kenya in the late 1920’s. The vision of the company is the same as its parent company but limited to East Africa. The mission statement of the company is as follows ‘through understanding and meeting our customers’ needs, we will profitably expand our market for wealth accumulation and protection in Kenya’.
1.1.2 Background to the Population Area and organizational Chart
Old Mutual has 16 retail marketing outlets throughout Kenya including 4 in Nairobi. The retail marketing arm is under the jurisdiction of the Head of Sales who is at the head office. The head of sales is part of the executive management who reports on the activities of the sales force. The head of sales is assisted by head of channels who oversees the activities of the Branch managers in different locations. Under the Branch Manger are Sales managers who manage the Agents.
1.2 Problem Statement
The Insurance industry has suffered astronomical losses resulting from high rate of labour turnover among Agents especially the new agents. The new agents are the sales representatives who have been with the company for less than four years. Annual report published by LIMRA international in 2004 pointed out that four year agents’ retention has not been able to move above 13 percents. This translates to 87 percent of the new agents in the insurance industry leaving their respective companies within the first four years of signing the contract.
An agent in the insurance industry especially life insurance starts becoming profitable only after the third year of their contract in the company. This is because the initial years are characterized by huge training cost, initial allowances which are not tied to production and forward-earning commission system. This results in high expenses for the firm in the early years of recruiting an Agent with the hope of recouping the cost gradually from the future earnings of the Agent. This implies that most of the insurance companies have been incurring huge losses because of consistently poor retention rate of the new agents. Insurance agents’ retention has become a matter of concern as the Association of Kenya Insurers (AKI) highlighted in the 2011 report concerning developments of the tied agents in the insurance industry in Kenya.
AKI report (2010) observed that lack of personal development of many Agents who join insurance industry is an issue that requires attention by the industry if the industry is to remain relevant in the country. Lack of personal development among the agents has been cited as an important factor that affects agents’ retention in the industry.
A Life insurance company relies on a stable Agency force to sell its Life insurance products. These products are usually long tern going for a minimum of five years in duration. Agents are paid commission for any policy sold. The commission is structured in such a way that a substantial percentage up to 50% of the premium is paid in the first year and between 10% to 40% is paid in subsequent years up to the fifth year or sometimes end of the policy term. The profitability of a policy to the Life insurance Company depends on the consistent servicing of that policy by the Agent.
If an Agent leaves an insurance Company when the policies he sold are still in their early years, such policies will no longer be serviced. Hence, the Company will lose in terms of future in-flow of investable funds, loss of commission paid in advance for future services of the Agent and an early lapse of such ‘orphan’ policies. The economy also suffers because it will be starved of investable funds which aid the economic development of the nation.
Old Mutual Life Assurance Kenya has experienced a drop in its number of Agents in the past years. While it had 500 Agents in 2010, they currently have about 200. This has also reflected in the revenue of the company from the individual life Insurance segment of the company. The premium income generated by the Agents for the past four years is represented in the following table.