ÌLM – MYTHS, LEGENDS, PUNS AND MANY MORE!
(MISSION POSSIBLE)
I start the topic seemingly easy, but its interpretations and analyses up to now are much more of a concern than a creative state. I grab the pen with the intention to clarify the topic by providing explanations to ourselves first, and then make it clear to all of the others who are interested in the topic of creativity and success.
What is it all about?
Dear colleagues, ladies and gentlemen,
Let’s look at any of the newspapers, no matter of the regularity in which it is produced, and read the headings! Having done this, I am sure you would agree that the headings implant feelings of paralyzing fear, irony, mocking remarks and many other shapes of “ baiganisms”( Bai Ganyo is the most distinct character in Bulgarian literature notorious with his arrogance and vulgarity) and many more from the dark side of newspaper spectrum. Concepts and meaningful paragraphs are used light-handedly; they often back us away before we have the chance to sense their content. You do not need to be an erudite to conclude that such an approach is handy for the sole purposes of newspapers, as the sensational vulgar wordings increase the newspaper circulation. My concern is provoked by the fact that the newspaper pages as a whole and those describing our branch of business, showed concepts like “ pyramids”, or “pyramid schemes” let’s refer to them as glimmers of thought. Some articles about the use of multilevel marketing(MLM) in life insurance have been published recently. In something like chalga pop-folk business style, MLM is equal to pyramids and pyramid schemes. I honestly claim to be nor surprised, nor astonished. I am thinking about success, activity, fear, and humility, and I find it important to
”say what’s right and wrong and take the right path”, no matter that this right path may have led the author of the aforesaid words- you know where!
In this manner of thinking, I can provide an example from the Bible as well. When Pilate told the Roman soldiers to crucify Jesus, he ordered over the head of the martyr be placed the mocking inscription INRI in latin – Jesus of Nazareth, King of the Jews. This inscription was actually intended as a haughty mockery towards Jesus by Pilate. Today I ask the question: who is being mocked at, at what cost, and does truth reach us in time? Who lets whom close to their heart, and who condemns who- at least in their minds? This question is rhetorical, but it is also open-ended! Pilate just made a mistake, which had such a huge effect that these days his name is being avoided; it brings up thoughts associated with the name of Hitler!
What is important here is that over time there has been drawn the infallible conclusion about truth and human ignorance. I am not such an expert to know the exact time of Christianity development into mass religion, but I know that its onset was difficult but immediate!
I know that the place where Jesus followers had been burned alive, today is the Vatican.
Eventually, the clever ones are distinguished among the others by the various mistakes they make, while the other themselves make the same mistake again and again. I wish we wouldn’t hide the truth anymore expecting it would flash in a moment by itself while we are so silent with fear, which has actually been happening for ten years. But we’ ve had enough!
I will start a vague flashback of these 10 years- those days when some newspapers began publications of the so called pyramids.” At that time even companies using network marketing were given such names. A year later, on a whole page of “Capital” Mr. Krasimir Angarski( whose competence would hardly be questioned) made the distinguished as sharply as possible the concepts and mechanisms of the so called pyramids on the one hand, and on the other- the network market, or also referred to as MLM. Angarski’s article, for those are unwilling to do analysis and interpretation, made the conclusion that the pyramids and MLM have nothing in common!!!
This conclusion was never understood, and the mistakenly made parallel between pyramids and MLM, keeps on damaging life insurance, poisoning the business climate, and finally the beginner partners of any marketing network are numb with fear and becomes deactivated. I think that this infliction of damage is critical on a national scale, and I will do my best to explain why. Firstly, I will provide some theory derived from practice. The pyramid is a scheme of definition(calculation) the rate of promised dividends of an activity which resembles the banking activity, but is not a business one. For instance: the pyramid company promises that if you invest $1000 in something like a deposit- in a month or so- you will receive your capital plus a dividend or interest of 40 %, i.e. you invest $1000, the pyramid company uses it n a way, but in a month you get $1400. Principally speaking, in order to get a business result, compared to the way banks work, for example, the pyramid company is supposed to give the $1000 as a loan to a borrower with a monthly interest of, let’s say 50 %, and after a month, the credit received by the pyramid company is supposed to give $1500 back, $1400 of which is paid, as promised, to the depositing party. The following facts are obvious:
1.Such crediting terms are absurd.
2.Extremely high dividends and interests are promised in a short term, without any action by the depositor.
3.There is no normal business to guarantee such a dividend for such a short period of time.
The connection of the abovementioned facts give the clear conclusion that the pyramid company’s business, i.e. giving invested money to someone in the form of credit – simply does not exist. The first participants in the pyramid are paid the promised dividends at the cost of the capitals of the participating depositors who come next. Interruption in the flow of new investment leads to a sharp negative balance, immediate bankruptcy, and naturally to a scandal. This way of enrichment was first used in 1919 by Charles Ponzi in Chicago, USA. This gives the real name of pyramids: Ponzi scheme. I can tell you that this example gives the actual parameters used by Charles Ponzi( for reference: Internet). In fact, with pyramids the business nature of banking is violated. A dividend is paid in a way that resembles the one of commission taking, but the depositors’ capital lacks such a calculation, which leads to pure crime.
What is MLM? MLM is a commission remuneration, or a way of distribution of a product’s value, which is calculated in advance.
It is possible to realize a MLM with each product whose cost price includes the calculation of added profit or commission. Everyone knows that bank deposits exclude calculated commissions. It is known that insurance transactions are rewarded, as the seller/sellers are paid a commission remuneration- agent fees. This commission remuneration is calculated in addition to the net bonus( the net cost price of insurance). Other costs can also be additionally calculated, for example, costs for insurance tax etc. (by the way that is how the price of gold is similarly calculated).
Costs paid to the insurance agent or the team performing these actions are called acquisition costs. The amount of such costs is determined by the current practice, they are calculated by the actuary who drafts the respective tariff, the tariff is approved by the supervisory authority and is marketed by the respective insurer. Thus, the determined acquisition costs are paid in the implementation of the deal. MLM is a distribution of this commission amongst one or more insurance agents. No matter what is the number of agents who get a commission for a deal, the gross amount of paid acquisition costs never exceeds the pre-calculated ones. In fact, the number of agents who get a commission for a deal, is never bigger than the number of levels in the respective MLM system. This distribution and its multiplication are aimed at motivating the good sellers of insurance policies, and consequently expanding the number of insured persons, which is very important for the management of the risk taken by the insurer. As it is well known that the audit bases for each insurance are built on probabilities. Many insured subjects, or natural persons are needed so that these probabilities come with a practically sufficient accuracy. In the modification of bonus reserves of mixed life insurance according to the methods of August Zilmer and George Hekner( hellooo, these methods date back to 1863…), the relative amount of acquisition commission in the first-year insurance bonus of 10 and more year- long contracts, is significant. This gives the chance for a certain commercialization of insurance policy sales of endowment insurance, which is ok( I claim that in my capacity of insurer). This commercialization of sales means that the future agents get a clear picture of the valuable components of resources, the time and effort, put in the achievement of a certain commercial result; this a large and stable insurance combination.
Having in mind the social nature of our society, and comparing the practice in action to the requirements for an insurance agent in a network marketing system, it becomes clear why there are more women than men in the business trade of mixed life insurance policies(products); as whole the participant of this sales apparatus are at the average age of 35. Let’s take into account that at present in Republic of Bulgaria in an average company of more than 500 employees( a minimum insurance number), the personnel has average insurance age of 41-45. As death rate and disablement rate with women compared to men and the 35-year-olds( when compared to the 45-year-olds) are less, the advantages of the so formed combination are unquestionable. Despite all this, however, the life insurers who use directly or indirectly the MLM, are cast doubt upon, because, after the use of the multi level system and a number of other definitions, there appear to be some “stung” parties. Other questions are being asked; different interpretations are made. Let us further clarify if there are “stung” parties indeed.
It is possible to assume that some agents, consultants or whatever you may call them, have bought insurance policies out of pure commercialism- to participate in the transactions for a commission remuneration. Insurers often recommend or recruit agents among the ones who themselves have already insured. Out of pure advertisement, it is a good idea that the agent already has what he/she offers. Imagine a shop assistant working in a fancy shoes shop with bare feet or wearing cheap shoes, or an unbeliever who offers indulgences. In most cases, those who have an inclination to trade with life insurance products, are in good health condition, and I do not think that in the case of such insured person the insurer is not interested in an endowment insurance. Everyone who gets sick has been healthy before that. At the same time, no one can predict an accident. The biggest concern, however, for every living and normal person is to survive the period of endowment insurance and the insured to receive the sum - safe and sound. To be safe and sound, for the years of a endowment insurance, people need enough money in order to maintain their normal life status. This should serve as a sufficient argument against the most vigorous critics of the multiplying trade with life insurance policies. Moreover, the misunderstanding in relation to the lack of personal interest in insurance is fueled by the very etymology of the term “insurance” – as if it comprises of fearsome elements that exclude the perception of the nice, so to say for the insurance risk, nice experience of surviving the contracted term of the endowment insurance. Think of an insured person, who receives the insurance sum at the expiry of the insurance policy and with the amount of money taken they go on a world tour- there is nothing scary about such an exciting experience. However, we call it a risk, and cover it with an insurance; the term consists of and includes the concept of “fear”.
We came to the conclusion that the so called practice of network marketing or MLM includes the combination of appropriate enlargement and infiltration of the insurance set, but also the established purely commercial practice. If this is the case, why do we talk about “stung” parties?
In part III of the Commercial law, art. 418 regulates that “ …the insurer is obliged to pay the surrender value of the policy, if from the beginning of the insurance at least two years have passed and premiums are paid regularly”. Probably they consider themselves “stung” clients who have not fulfilled the imperative requirement of the above mentioned text, and they have terminated their insurance contracts. We cannot find fault in Zilmer and Hekner, the authors of the world wide accepted audit foundations, because other experts in life insurance think that those, who terminate their life insurance contracts early, because they consider themselves healthy and decide to escape the insurance set, actually complicate the risks of the ones who remain in the set. This logic is reflected to some extend in art. 418 of the Commercial Code, in the calculation of the surrender value and protects the interests of those insured persons who remain in the insurance set. From the point of view of marketing, this typical case is reflected in the following situation:
- insurance premium is paid for the first insurance year of the endowment insurance
- someone starts work as an agent or broker, when it is time to pay the premium for the second year, a “ransom money” is demanded or”…refund of the given money together with the interest”.
There is no reason for the first one or the second, at this stage of insurance, so the trivial excuse follows: people are not familiar with the imperative requirement that the client is not notified, in spite of the signature on the respective documents. Complaints and appeals follow; so does the conclusion that” my money has disappeared; money disappears in pyramids, so this a pyramid.” The sentence written by our genius poet occurred to me:”… holy foolishness”. Colleagues, please do pay attention “… reason and conscious are fighting it for ages (1863)”. Making such statements without knowing the law requirements and acting this way is equal to exceeding the speed limit driving at 180 km/h and when being stopped by the traffic police to claim unawareness of the speed limit. Nonetheless, logics like this and a certain naivety gave rise to the notion that MLM is similar to financial pyramids. It not necessary to clarify that if the endowment insurance was bought from an insurer who is no part of MLM in the distribution of commissions, when the first year elapses the same situation occurs- who would be blamed to be a part of a pyramid, although we have come to the result with the “stung” client? My question is why the term pyramid has such repercussions in society and in this business branch, when the equalization of MLM and a financial pyramids is similar to the inability to make difference between Kalofer and California.
In fact , I don’t mean to be like Diogenes or someone else. I come to the clear conclusion that it is time to change things, without this being an end of itself. I am pretty sure that if we stop poisoning the insurance business climate the way we do and provide it with a “back” and creativity, that we are capable of, the branch will escalate. In this way, we, the life insurers, will have our contribution to the development of our business society, however, we should have in mind its requirements of initiative freedom and loyalty, because sometimes something small can ruin something big. Let’s give us a chance to demonstrate what we are capable of!
BORIS GEORGIEV
