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

44 Pages Posted: 3 Jan 2012 Last revised: 17 Aug 2016

See all articles by Santosh Anagol

Santosh Anagol

University of Pennsylvania - Wharton School of Business - Business Economics and Public Policy Department

Shawn Allen Cole

Harvard Business School

Shayak Sarkar

University of California, Davis - School of Law

Date Written: April 7, 2016

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.

Suggested Citation

Anagol, Santosh and Cole, Shawn Allen and Sarkar, Shayak, Understanding the Advice of Commissions-Motivated Agents: Evidence from the Indian Life Insurance Market (April 7, 2016). Harvard Business School Finance Working Paper No. 12-055. Available at SSRN: https://ssrn.com/abstract=1978876 or http://dx.doi.org/10.2139/ssrn.1978876

Santosh Anagol

University of Pennsylvania - Wharton School of Business - Business Economics and Public Policy Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6372
United States

Shawn Allen Cole (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Shayak Sarkar

University of California, Davis - School of Law ( email )

Martin Luther King, Jr. Hall
Davis, CA CA 95616-5201
United States

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