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Triangulation – the income protection deal changes

When Bill Clinton lost control of the legislature in 1994 he went on to success due to a policy called ‘traingulation' - the ability to win back the public at the expense of the Republican House.  

Wednesday, November 10th 2010, 9:25AM

by Russell Hutchinson

Back here in life and personal lines insurance triangulation is constant: it's all about balancing the requirements of the life insurer, the broker, and the client in the insurance contract.

Recently one major insurer nudged that deal slightly. Sovereign reduced commission a smidgeon partly to allow it to increase benefits and reduce the premium on its income protection contract. Will this new version of the policy of triangulation work?

That depends on your view of the value of commission. Critics of the way life companies pay commission are often rebuffed by an argument about work.

There is a generally accepted accounting practice that income should be realised in proportion to effort (I roughly paraphrase).

Since selling life insurance is so much harder than renewing it (unlike general insurance) this explains our high skew to upfront commission.

The argument comes unraveled just a little bit when we look at income protection, because less commission is paid (as a percentage of premium) for a lot more work.

For example, fewer people are eligible, more of them will be rejected or have loadings imposed through underwriting, and all in all it's a harder sale.

You can claim that the higher premium makes up for all of this, but a quick look at the ISI stats shows that although the premium per case may be higher, income protection still lags life insurance as a segment in premium - by a long way.

Some brokers would prefer income protection to look more like life insurance, rather than less, when it comes to commission.

But the tradeoff may be worth it for them if the new product - with lots of shiny new features, lower premiums, and the imprimatur of the largest life insurer in the marketplace is easier to sell.


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