The influences of sales compensations, management stringency and ethical evaluations on product recommendations made by insurance brokers

Abstract

Purpose

The purpose of this paper is to explore the impacts of the size and timing of sales compensations, the management stringency of the insurer and the insurance broker's own moral views on product recommendations made by the brokers.

Design/methodology/approach

The data used in this research were gathered from life insurance broker companies in Taiwan.

Findings

The results showed that the sales compensations, perceived leniency of the insurer's underwriting and claim policy would affect the product recommendations made by the brokers.

Practical implications

Insurance brokers are one of the most important marketing channels in the insurance industry. However, using the insurance brokers to sell insurance may result in some ethical problems. For example, some insurance brokers may sell insurance to high-risk customers because the high-risk customers may prefer to buy more insurance and that means more sales compensations can be earned. The findings of this research may have some implications for insurance management and insurance regulation.

Originality/value

This study contributes to the understanding of insurance brokers' responses to adverse selection problems (high-risk customers may prefer to buy more insurance) and product recommendation decisions. The issue has been less mentioned in the financial regulation literature.

Citation

Tseng, L.-M. and Kang, Y.-M. (2014), "The influences of sales compensations, management stringency and ethical evaluations on product recommendations made by insurance brokers", Journal of Financial Regulation and Compliance, Vol. 22 No. 1, pp. 26-42. https://doi.org/10.1108/JFRC-08-2012-0031