Why huge acquisition/marketing cost is only in insurance industry?

Question

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Is a high % agent commission contract clause fraud in your jurisdiction?

Here is the problem. This seems to only happen in insurance industry. Basically we have this insurance product called unit link. Update: In Indonesia many insurance companies charge high acquisition costs. So 100% of premi is gone to pay for the acquisition costs. Actually the total amount gone is about 230% of yearly premi.

Things get interesting because in some companies, even when the insurance benefit only worth $10, an agent can set premi to be very high (thousands of dollars or even more) and claim that all money are "invested".

So basically customers put $5k on "investment". Agent says "all are invested." Customer thinking that all are invested put huge money only to see all those money are gone for fees.

Customers got almost nothing. All money are gone for acquisition fee. About 50% is to pay insurance agent. Customer also get Insurance protection worth $10 and An option to "continue" the "investment" where customers will lost even more money for insignificant insurance cost.

Basically customer miss the part where it says that 100% of premiums are gone for acquisition fees. It's written in contract but quite well hidden among terms that's not important due to low insurance portion of the arrangement (like how to file a claim).

The customer is negligent in not reading a part of the contract that says that there is a huge acquistion fee. However the part of the fee is well hidden inside other terms and the agent already said all are invested.

The question is this. Why doesn't this happen in bank and other places? Why only in insurance we have this problem?

When we put money in bank we don't check that all money are "debited" right? We don't make sure that there is no 100% acquisition fee on all money we deposit?

When we buy stuff from supermarket we don't read contracts to make sure that we don't owe them 1 million dollars buy buying a bubble gum. But why this can happen in insurance industry in Indonesia?

Answer 1

Why doesn't this happen in bank and other places?

There are a couple of reasons this may be the case:

1. It happens, you just don't notice it;
2. It doesn't happen because banks haven't figured out a way to do it;
3. It doesn't happen because it's been outlawed.

Unfortunately, I do not have the time to traverse Indonesian legislation to determine which laws may or may not apply to banks but not insurance. However, I will say this: generally, the financial services industry, and in particular, deposit-taking institutions, are subject to a higher level of scrutiny than many others. (I'd usually say that insurance is also fairly-heavily regulated, generally.) So it's likely that there are laws and regulations that prevent banks, for instance from doing it.

As for other places... I don't intend to traverse the trillions of contracts made each day.

Why only in insurance we have this problem?

You haven't proven this. You've only proven that you've only noticed this in insurance. And, if that's the case, see above - perhaps insurance isn't as highly regulated as it is in other places around the world.

When we put money in bank we don't check that all money are "debited" right?

Not sure what you mean. If you mean that you don't give your statement at least a cursory overview when you receive it, or monitor your account online regularly to make sure that everything looks okay... well, that's not really a legal issue, but maybe it's something worth considering.

We don't make sure that there is no 100% acquisition fee on all money we deposit?

I guess not. Maybe you pay bank fees on deposit products, or interest on credit products, or other fees, instead. And, if you read the fine print (which I'm sure no one does), I'm sure you know that there's no acquisition fee - though it might be called something else.

But why this can happen in insurance industry in Indonesia?

Good question. The whys of this situation as far as the law is concerned is that: it can happen because the law allows it to happen. If you want to know why the law allows it to happen, I suggest you ask your parliamentary representative(s).