The Bottom Line / Don't mention the Y word
When transferring from one company to another becomes quick and easy, we can expect the companies to do much more to achieve higher yields.
Nitzan, a Holocaust survivor, a mother of two, and a professional with an above average salary, sat down with an insurance agent last week for her regular consultation. The agent clearly and succinctly outlined the policies and what they entailed - how much she should save for her old age and how much to take out in a lump sum at age 65, which plan would be best in terms of tax, and how much risk she should take to allow her children to live decently.
The agent was fine. As opposed to others Nitzan had come across in the past, this one didn't confuse her or suggest umpteen alternatives, but concentrated instead on two or three clear options. But when it came to the question of yield - the rate of return on the insurance policies over several years - the agent found himself somewhat short of words, and had nothing constructive to add. He found it difficult to explain why he was selling policies from the Phoenix and Migdal insurance companies and not Menorah, which is known to have the highest returns in the market.
When Nitzan pushed, the agent mumbled something about Menorah not providing the service, and its insurance package not including a particular risk coverage - but on whether having a higher yield means Nitzan would be several thousand shekels better off when she retires, or whether, on transferring her policy, Menorah would continue to reap the market's highest returns, he had nothing to say.
It is possible though to assume that the commissions from those companies whose policies he sells call the tune, and that determines what goes into his basket of goods.
And this is one of the major problems with insurance agents today. They can talk for hours on looking after your children and what happens to you after you're 65; and they are experts in diagnosing hypochondria in their clients and pushing just the right policy that covers all ills. When they raise an eyebrow and wonder if that's all you are prepared to leave your dependents, and "maybe you could slightly raise your risk component," you feel pressured. You feel like throttling them. But then that's their profession, the line of work for an insurance agent.
But on one thing - and it's not such a small thing - they have nothing to say: Which company knows how to invest their life insurance money best of all, and why they are not moving your money to that company.
It's not that they don't know. They are fully aware of which ones stand out and which are lagging behind, but the agent doesn't want the client to start choosing which company to buy their policy from, because this is what grants the agents their power - at least until now. But the reforms in the capital market and in the insurance and banking sectors will change the picture. Agents will become one of two kinds: consultants or marketers.
The marketer will market policies from two companies and will offer you the best of the two. The consultant will have to provide the best advice on all the products in the market. Both will have to acquire financial knowledge and offer their clients information on yields and not just on policy components and tax matters. And when transferring from one company to another becomes quick and easy, we can expect the companies to do much more to achieve higher yields.