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

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 test whether regulation or the market can improve advice. A natural experiment requiring disclosure of commissions for a specific product results in agents recommending alternative products with high commissions but no disclosure requirement. Market discipline does generate de-biasing, with agents perceiving greater competition more likely to recommend a suitable product. ∗[email protected], [email protected], and [email protected]. iTrust provided valuable context on the Indian insurance market for this project. We also thank Daniel Bergstresser, Sendhil Mullainathan, Petia Topalova, Peter Tufano, Shing-Yi Wang, Justin Wolfers, and workshop participants at Harvard Business School, Helsinki Finance Summit, Hunter College, the ISB CAF Conference, the NBER Household Finance Working Group, the NBER Insurance Working Group, Princeton, the RAND Behavioral Finance Forum, and the Utah Winter Finance Conference for comments and suggestions. We thank the Harvard Lab for Economic and Policy Applications, Wharton Global Initiatives, Wharton Dean’s Research Fund, Wharton Risk Management and Decision Processes Center, and the Penn Lauder CIBER Fund for financial support. Manoj Garg, Shahid Vaziralli and Anand Kothari provided excellent research assistance.