Seth’s Blog on Finance

Eating One’s Own Dog Food

I came across this video and somehow got reminded of a phenomenon that occurs with insurance agents. The video shows a man — who identifies himself as a Senior Brand Manager of a vacuum cleaner company — cleaning an area of the dirty floor of a subway station with his vacuum cleaner before spilling food over it and eating the pieces off the ground. He then proclaims his upmost faith in his product’s effectiveness.

“Eating one’s own dog food’’ describes what he has just did. The phrase refers to a situation in which someone uses their own product to demonstrate the quality of it and their own personal conviction in their product. Such a practice is actually quite prevalent with insurance agents.

Agents who eat their own dog food…

There are agents who would proudly proclaim that they bought the very same policy they are trying to sell to their prospective clients and use this fact to reassure their clients that the product is indeed beneficial. This can be quite convincing to some extent, until one considers these few points:

1. Agents also get substantial commissions by buying their own company’s products. Most policies shortchange the clients usually because of the high upfront distribution costs, most of which are paid to the agent (and his manager) in form of basic commission and bonus incentives. A subpar policy isn’t that lousy a deal when an agent is able to pocket a significant portion of the distribution costs.
2. Agents can themselves get “food poisoning” when they “eat their own dog food”. Most insurance agents are salespeople first and insurance planners second, if they do plan at all, which is no surprise since their one and only key performance indicator is sales — their jobs, promotions, income… everything is solely on how much revenue they bring in. As a result, they are good at selling, not at proper planning, and are thus ironically underinsured themselves despite selling insurance for a living.

Point 2 is quite close to heart for me. When I started out as a tied agent years ago, I was much younger and a lot more naive. Like many people, I thought it was perfectly alright to buy (and sell) insurance products and believed that they are all by and large beneficial. At that time, I ate my company’s dog food, so to speak, and bought their policies for my dad and myself. I ended up damaging my father’s insurability and eventually realised that I was myself underinsured with a subpar policy when I learnt more about financial planning.

Think about it: if a policy is bad for an agent who earns commission off buying the policy, how awful is it for the agent’s clients?

Luckily, my own policy was still quite new then, and I got to recoup some of the distribution costs of it by the commissions paid to me, so the financial loss of cancelling it was not huge. My father’s case is regrettably an irreversible mistake which continues to serve as a reminder to me why I do what I do now.

… and agents who don’t

While the agents I’ve just discussed may be well-intentioned but merely misguided, there exists another unsavoury group of agents who would not even purchase the very products they recommend on a daily basis.

Towards the end of the year I spent in a tied agency, I was desperately trying to seek some kind of reason to stay with the company (since leaving was a very big change to make at that point). I asked a colleague if he would purchase the same savings plan he’s been selling to his clients. He was honest (to me) and said that he wouldn’t because there are much better alternatives available, but he had no qualms selling it as it earned him money. To his clients, his verbal reply is always a resounding “yes” if anyone asked if he bought the same thing.

I also know of this other tied agent whose bought his insurance policies from one of my current colleagues. Despite the substantial commission he earns from purchasing his own company’s policy, he did his calculations and knew that he was much better off purchasing something superior from someone else. No prizes for guessing correctly if he ever tells his clients this tidbit of information.

Would you eat the food of a chef who becomes ill after eating his own food? How about having a taste of something prepared by a chef who seems deathly afraid to take a bite of the very dish he cooked?