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The great commission shake-up

Commission rates from life companies have seen a significant shake-up in recent months and sparked calls for the industry to do more to bring in new clients, rather than encouraging the churn of existing business.

Thursday, November 5th 2009, 3:19PM 5 Comments

Four life companies have altered commission payments of late, including AXA, which has presented new terms for persistency and upfront commissions; and AMP, which has made revisions to its adviser business terms.

Of particular interest, however, are changes by Sovereign and Fidelity Life, which are taking very different approaches to structuring commissions. Sovereign has moved to offer a fixed basic initial commission of 230% for all TotalCareMax Life Cover, Rate for Age policies, while Fidelity Life has introduced a new service commission and deferred initial commission.

Fidelity Life's Commission Supplement states that service commission will be paid to intermediaries that have a risk in-force book greater than $100,000 and that can demonstrate they are maintaining their clients. It also states that advisers must spread at least 20% of initial commission, with initial commission spread into the second and subsequent years referred to as deferred initial commission.

Chatswood Consulting principal Russell Hutchinson says Sovereign, which tends to pay more upfront commission than Fidelity Life, has chosen to focus on paying individuals. Fidelity Life, meanwhile, has been growing fast and has a loyal client base.

"Fidelity is only nudging them one step towards taking more spread commission, which they know adds to their business value anyway," Hutchinson says.

Life Brokers Association president Rob Flood says more needs to be done to attract new clients into the market, rather than existing policies being churned between insurers touting enhanced benefits.

"The churn is something that is a real worry, both for clients and companies," he says.

Flood says Fidelity Life recognises that its Platinum offering is a good, well rated product.

"The commission is only one side of the equation, the policy benefits and features are much more important than commissions selling products," he says.

Flood says Sovereign have extended the period the policy needs to be on the broker's book to actually receive the higher commission.

"It's been a double-sided sword really. You get more commission but the policy has got to go longer," he says.

« Ombudsman wants change to disclosure rulesInsurers need to work together to build the pie: Carroll »

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Comments from our readers

On 5 November 2009 at 9:27 pm Billy the broker. said:
There will always be churning and there is nothing to stop it! If you can offer a client a better deal with better benefits and same underwriting.Are you telling me that you will not move a client to another company Rob/Russell??
If you say no, you must be the most angelic brokers out there. Sorry to say as long as the client gets a better deal and we dont upset the underwriting process this will carry on for a long time,if I may say the client benefits.
Your comments on this.
On 8 November 2009 at 9:45 pm Ron Flood said:
No, 'Billy the Kid' we are not angelic brokers, and yes we do replace clients policies in situations where they will be significantly advantaged. What I am referring to is the practice wherby so called 'independant advisers' do Risk Audits on client's existing policies and then churn them to another company. One of the reasons that they have to churn to a new company is they only have 2 or 3 agency agreements and are unable to receive adequate compensation if they advise the client to make alterations to existing cover which may indeed be the best for the client.
This unfortunately happens when 'independant' brokers have to place a large portion of their business (85-90%)with the one company.
The rational for the churn is that the new policy has a better 'x' benefit or a better 'y' benefit. The fact that other equally important benefits are inferior appears to be conveniently ignored by these brokers.

As far as not upsetting the underwriting,some companies are quick to get business on the books without comprehensive medical notes from Doctors
but can't get this information quick enough at claim time.

The thrust of my original comments to Good Returns was that we should be out there looking for new clients rather than recycling the existing ones. Replaceing policies is, as you suggest, always going to happen. We advisers need to make sure it is for the right reasons.
On 9 November 2009 at 2:55 pm Alan Bradnock said:
I agree with both of you, client comes first and you need take into consideration all factors including "policy wordings" as well as underwriting.
"Policy wordings" are really the only thing you have left the client with after the business has been implemented. Some companies say to us " our philosophy is to pay claims". This is all well and good but many insurers need a movie camera to take the staff photo,(including their CEO). People change and cultures change, and all that remains is what is wriitten in the document.There is qualitative and quantitative independent research available to assist brokers/advisers with the selection process.
I also concur with Ron that it's about the client not the commission. Brokers/advisers who have been taking commissions that better reflect a larger renewal are able to operate their businesses differently than those who do not.
On 10 November 2009 at 6:42 pm Billy the broker said:
What I find totally fascinating about this topic of churning, is that the blame gets laid most of the time on the brokers lap.Insinuating that we are greedy with no ethics and only doing it for our pocket with no regard for the clients interest and their wellbeing. But who started all of this?? We all do know the answer to that one don't we!! And it is not the broker. I really get disappointed when I read that such and such ceo is upset how business gets moved and it effects their companies profitability, and how it is so wrong!
When in the first place these ceos bounce from one company to another and at the time try to entice there broker base to move the business with a bit of butering up.Be it wining and dining enhanced bonuses with large renewals, they can all do it with a push of a button. But no one says anything about them, but point the finger at these awful brokers who just twist/churn business for the extra dollar, shame on them they say!Maybe it should be shame on those that have the ability to control the nature of the beast????
Your comments.
On 11 November 2009 at 8:45 am Ron Flood said:
I agree with Billy and infact broached the subject with the CEO's attending the Round Table forum Good return's hosted prior to the IFA conference. On the one hand companies take a dim view of brokers who 'churn' business away from their company, and yet on the other hand,offer to waive the suicide clause and the trauma stand down period on replacement business they receive.
Commenting is closed



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