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Institutionalization of Deceptive Sales in Life Insurance: Five Sources of Moral Risk

NCJ Number
British Journal of Criminology Volume: 46 Issue: 6 Dated: November 2006 Pages: 993-1010
Richard V. Ericson; Aaron Doyle
Date Published
November 2006
18 pages
Interview and ethnographic data from Canada and the United States are used to show that the life insurance institution is socially organized in ways that encourage its salespeople often to put their clients at risk.
Deception and financial risk have become commonplace as life insurance companies have combined death insurance with investment plans that are risky while being portrayed as guaranteed and superior to other investment options. Another factor that drives misconduct in the life insurance business is salespeople's almost exclusive dependence on commissions from new sales. This promotes what is called "churning," whereby salespeople continually attempt to gain commissions from new sales of replacement policies to previous customers. The process of recruiting, training, using, and dropping life insurance agents is another key factor that fuels market misconduct. It is common for companies to recruit new agents, provide sufficient training for licensure, use them to sell policies to family members and friends, and then drop them when their sales decline. This promotes an unprofessional and desperate group of salespeople. Further, an aggressive sales culture conditions agents to assume that everyone is underinsured and has the money to pay premiums, such that every contact should result in a sale if the right tactics are used. The aforementioned factors that foster misconduct continue unimpeded because of limited regulation of market practices. This study, which was conducted in Canada and the United States, involved 224 open-ended interviews with marketing executives, managers, and agents with life insurance companies; brokers; representative of broker associations; industry association officials; and regulators; as well as life insurance consumers and consumer association representatives. Researchers also directly observed life insurance sales practices in various contexts. Documents examined included training and operations manuals for life insurance sales agents, marking research and strategy documents, and materials for sales promotions. 38 references