What I Learned about this Complex Insurance Industry from Ramesh Krishnan’s Lawsuit and Interview
Something about this saga didn’t add up to me.
This week, the Straits Times published a story of an insurance agent who won his appeal against a former employer who cost him 2 subsequent job applications.
Mr Ramesh Krishnan was an insurance adviser with AXA. He tendered his resignation and approached Prudential and Tokio Marine to join them.
Both applications didn’t work out and he decided in 2012 to file a defamation suit against AXA, on the grounds that their failure to meet the standard of care for Mr Krishnan cost him his job at Prudential and Tokio Marine.
He was looking for $63 mil in largely what would be future compensation.
The 2012 defamation suit was a failure and he decided to appeal.
In this week’s news, the court awarded him $4 mil, far lower than the $63 mil he was looking for.
Lawsuits like this happen quite frequently, so it was not much of a surprise.
On the social media, many were taken aback by the amount of compensation Mr Krishnan was looking for, and that the senior position he signed up will pay a salary package worth almost $2.25 mil.
What peek my interest was this subsequent article in The New Paper focusing on his new endeavor, which is a vegetarian restaurant in Little India.
People using the media to bring attention to what they are trying to sell is not new. We seen this a lot in the Me and My Money section of the Sunday Times.
What I find uncomfortable was how the New Paper portray the odds against Mr Krishnan.
And it made me think whether we are talking about a financial planner here.
Here are some points that was in these articles:
- The award of $4 mil given out was based on what he would have earned in Prudential, had the offer been made
- Commencement allowance of $675,000
- First 12 months monthly salary: $65,625
- May 12 to Jul 16 monthly salary: $43,750
- Lost of earnings between Jul to Aug 2016
- Mr Krishnan said he went from earning $2 mil a year to earning $12,000/yr
- He said he had a landed property, 3 cars, more than $2 mil in the bank prior to this
- You name any brand of clothing, he would have it
- When his career was gone, he felt lost
- When he lost his career, he had to sell everything to sustained his family and himself
- He had to struggle with a loss of prestige and the faith of others in him
- He said no one believed in him to win the case and only his family stood by him
- The restaurant was something that his mother in law, who passed away in 2010 wanted to set up so he is doing this as a tribute to her
- “I got excited about insurance by a person whose car I washed, because every year I saw him changing his car, from Datsun to Morris and eventually Mercedes.” “Eventually, I also ended up changing cars every year.”
- The five years that followed were “dark years”, where he listened to his inner self, drank a bit and cycled a lot to tackle the stress
- Mr Krishnan was trying very hard to rejoin the insurance industry
I read these articles and wonder the following points.
Should a Financial Adviser have a better Financial Footing than You?
If you go to your financial planner, and he or she is a competent one, they would have told you to:
- Have an emergency fund to fund any unexpected cash flow events. One major event would be losing your job
- Warn you against over leveraging your personal net worth
- Budget and plan a robust cash flow
This would put you in a position that should you be unemployed for a period of 3 to 6 months, you should do ok.
Mr Krishnan, is not your normal adviser. In 2007, he was promoted to financial services director and started to lead a group of agents under his own AXA agency organization, called Ramesh Organization. Subsequently, in 2009, he was promoted again to Senior Financial Services Director.
Yet, based on the account given, he was forced to liquidate his landed property and his 2 cars, despite having $2 mil in his bank account.
Now, to be fair to him, perhaps the reason for taking these drastic actions could be to fund the expensive 2012 defamation lawsuit.
If not, there is no reason for him to take such a drastic action.
There is a lot of information not found in the news paper articles. However, if we go to SingaporeLaw.sg, they have the whole case document out for us to find out more. You can read Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd  SGCA 47 here.
After resigning from AXA, Mr Krishnan approached Prudential for a senior position. To get into Prudential, they are required to get a RNF license for Mr Krishnan.
To obtain this RNF, Prudential was having “difficulties” getting the reference check information from AXA, his previous employer.
This dragged on from the normal weeks to 6-7 months.
I really hope that, as a financial planner, his financial assets allowed him to sustain a period of 6-7 months without a job. Because this is what a competent financial planner would prepare us for.
The last thing your financial planner would do is to push all your wealth building to the limit and that when things get desperate, you sell off everything.
As a financial planner, I also wonder if he has a large portion of his wealth in the investment linked policies, endowment plans, whole life policies that pays out annual cash flows.
If he owns them, the less drastic thing could be to surrender some of these policies, so that the cash from these policies can tide over his monthly cash flow needs.
It remains to be seen whether, Mr Krishnan sold off his landed property because it is not fully paid up. This meant that his cash flow have taken a hit due to the lack of a job, and thus he was forced to sell it off.
The reason don’t seem to be so, because he could have used his $2 mil in cash to slowly service the mortgage.
Should a Financial Planner have more ideas about Building a Wealth Withdrawal Plan than You?
Mr Krishnan explained that his annual income fell from $2 mil to $12,000.
That sounded terrible, until we remember that he sold 3 cars and a landed property.
A landed property sold during that period should fetch a decent price. Even if he owns 40-50% equity, the combined value of all sold should give him an asset base of $3 mil.
Mr Krishnan should be more sophisticated then us in knowing what kind of financial instrument he has, to create a wealth cash flow to sustain his family.
Even if he invest in a 3% bond such as an FCL bond, the $3 mil would have generated $90,000/yr or $7,500/mth.
This would have been in no way, such a critical position that he made it out in the article.
While it is a step down from his previous salary, compared to the Average Joes of Singapore, having $7,500/mth is comfortable for a family of 4.
The $12,000/yr annual salary gives readers the idea that he is heavily dependent on that income. My view is that a $3 mil net worth should be adequate for a family to plan well to last for 20-30 years as a middle income household.
Why would Everyone Leave Him? A Question about Integrity
Mr Krishnan went through that ordeal of losing himself, because he could have been wrongly accused of engineering a mass resignation in AXA and after that unable to get into Prudential and Tokio Marine (refer to the Singapore Law article)
I get the part of losing a part of you if you have been working and enjoying the work you have done for so long. Your morale and psychology are tied to your identity. Losing your job affects the composition of that identity.
But I would have thought insurance and financial planning is a relationship business.
You are able to sell if you manage to established a connection with the buyer.
A good planner over time, should have a bigger pool of network which he could leverage upon to grow his business and other endeavors.
That does not disappear overnight.
This is even more evident that if you are a man of integrity, people may not support you in public, but should provide morale or even financial support for someone with integrity but wronged.
I do not know Mr Krishnan personally, but through the court case study, things are indeed controversial.
The Issue of the Persistency Ratio and Team Selling Culture
A large part of the appeal centers upon the persistency ratio to assess Mr Krishnan’s Ramesh Organization performance.
The persistency ratio is a measurement used in the insurance industry that shows the total number of policies that a group or individual is able to retained during a period without the policies lapsing or premium amount lost to other insurer.
In layman terms I believe, means that there is a possibility that an insurance agent, or a group of insurance agent is able to resort to some sales influence to sell a policy.
The insurance agent would be able to meet their insurance quota, or to earn a lucrative 50% of the annual premium value in the first year.
The customer may cancel the insurance policy after that, when he/she realize the policy is mis-sold or a lemon. In the case study, it was also mentioned that single-premium insurance policy can have a volatile persistence, as clients will sell the policies which tends to be investment related.
A high persistency ratio shows that the individual or a group is able to clinch the sale, but also retain the insurance contract over time.
Thus this becomes a key criteria for MAS and the insurance company to assess if the agent or adviser they bring in is high quality.
In Mr Krishnan’s case, his defamation suit largely centers on that AXA provided misleading and not factual persistency ratio that affected his standing in the eyes of future employers.
The above was listed as a material fact.
Am not a lawyer but it seems these are historical facts that was verified. In this portion, AXA discovered that Mr Krishnan was terminated due to his poor persistency rate and extensive compliance record (which seem to mean a general lack of good compliance if I understand well)
The events leading up to why Mr Krishnan leaving AXA was due to how the period and nature of persistency ratio affected his group’s incentive and awards.
Mr Krishnan was assured that only the period where his group was selling mainly regular premium insurance policy would be used to compute the persistency ratio which would better qualify his group’s agents for incentives and awards.
The subsequent AXA CEO came in, and have a different idea. This causes unpleasant issues with the team.
When Prudential requested for the information from AXA, AXA provided the above. It shows not only the latest 13 month regular premium persistency (which is not good) but also the previous 19 month single premium persistency (which is volatile)
Not only that, AXA furnish disciplinary issues for advisers in his Ramesh group, which in this case study he says is not factual.
Mr Krishnan’s case in this appeal seems to allude that AXA intentionally painted a poor picture of his working performance while he was in AXA, therefore costing him future opportunities.
In the above, Mr Krishnan sought to address his track record.
The current AXA CEO then provided further information on the Ramesh Organization to both Prudential CEO and MAS regarding the group’s questionable culture.
At this point, it would seem that AXA’s CEO really have a serious concern over Mr Krishnan or this is a very deliberate ploy to ensure he doesn’t get hire in the industry due to a personal vendetta. You be the judge.
In the 2012 defamation suit’s conclusion, the judge rejected the idea that the negative account given by AXA has cost Mr Krishnan the employment opportunities in Prudential and Tokio Marine.
He however believes that the information on persistency ratio and the conduct of some of the group members are true.
The conclusion of the appeal is that the court finds that AXA did not do a good job providing information in good time and the standard of care to Mr Krishnan’s job application was lacking. They do not find that this would affect how Prudential and Tokio Marine view Mr Krishnan.
The court finds that Mr Krishnan cannot use the 24 month Prudential package as a basis of claim as it is just a draft and not been finalized.
Mr Krishnan was not able to provide proof of loss and damage.
As a summary, here are some conclusions:
- The Ramesh Organization have shown to have poor persistency ratio
- Mr Krishnan in the past have been terminated due to poor persistency ratio and lack of compliance prior to joining AXA
- There is possible twisting culture in the Ramesh Organization that AXA find it tough to substantiate
- Mr Krishnan failed to provide proof that he suffered loss and damage
If we revisit why people would leave him, the whole court case left us some clues.
It also made me wonder about how true it is that he is making $12,000/yr since, if he is really facing an income loss to a large degree, he should be able to substantiate this to the court.
Some Last Thoughts about the Whole Saga
I do not know about you but, it looks to me that he is trying to make as much of the opportunity that he has in the media to turn it to his advantage.
This case do galvanized some of my past view about the insurance industry.
Some branches of insurance companies have a culture of not putting the clients best interest in mind. Through the SingaporeLaw.sg summary, I get the impression that there are due diligence checks on the branches, These due diligence becomes metrics to reward the people that do things the right way.
The other way I look at it is that, in the case of Ramesh Organization there are many dispute of their persistency ratio, and the disciplinary records of the advisers in the branch.
The conclusion seem to be that the persistency ratios are not wrong.
There is a sales culture in some of these branches that encourages more sales than the benefit of customers. Such an environment can pressure someone to either leave or assimilate into the culture.
And as consumers, we can only hope that the people we put our faith in to advise us are doing things the right way.
Twisting of Policies is a real thing. Not just that, there are a lot of other shady sales that are done for the benefit of the agents to hit sales target. One common one is to encourage people you know to buy the policy and then cancel 12 months later. For the customer, the agent promised that the policy breaks even and this allows the agent to meet the sales target. I would think these are the types of sales that will kill the agent’s persistency ratio.
Shady advisers lurk in the industry. Despite evidence of previous low persistency ratio and compliance issues, AXA still employ Mr Krishnan on a conditional RNF license. He was able to rose through the rank because he has a very good sales process and influence a bunch of fellow advisers.
This gives me the impression that what is important is not so much selling the right products for the clients but how much you bring in for the company. If you show that you can bring in more money, and can grow a team that can bring in more sales, you have a place in the company.
Product Recommendation for some Branches are Driven in a Top Down Fashion. You would have thought that your adviser will recommend you policies based on your family or your specific situation and not so much based on the top down driven policies.
However, this seem to be the case. In the past when my insurance adviser was with Independent Financial Firm IPP, the most suitable product was picked by someone on the back end. I always wonder how that comes about. Was it someone up to drive which product to sell based on incentives?
You need to be equipped what kind of protection and investing needs you need. If you do not have the basic level of critical thinking, and a basic knowledge of protection and investments, you will be easily sweet talked into buying anything because when you know nothing, everything they sell sounds logical.
My view of Insurance and My Leanings are Captured in this article where I share my 23 philosophies on Insurance.
The Life Insurance Association is not going to watch out for you.
You better watch out for yourself.
To get equipped, there is a FREE EBook from DIYInsurance that can help you make sense of it, before you talked to an insurance adviser.
Not all advisers implement their financial plan well. The ones that advise us on a sound financial plan, might not be the most well informed about a fundamental protection and investment strategy. They also might not implement what will be fundamentally sound advice because they suffer from the same greed, fear, emotions that stop us from implementing a sound plan and sticking to it.
Here are some reading materials on this topic:
- Ramesh s/o Krishnan v AXA Life Insurance Singapore Pte Ltd  SGCA 47
- The man who defeated Goliath: Ex-insurance agent on winning $4m compensation for bad reference from AXA
- Million-dollar packages not that unusual, say insiders