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Insurers’ consider adviser cull over persistency fears

Three insurance companies are reportedly considering refusing to work with advisers whose persistency rates fall below certain levels, and one insurer is considering invite-only roadshows – with 15% of their current advisers excluded.

Wednesday, August 24th 2011, 5:13PM 15 Comments

by Benn Bathgate

Business management consultant Dr Ian Brooks told advisers at a TNP roadshow that three insurers he had talked to had mooted the ideas as they increasingly recognise the importance of retaining clients.

He said the tough economic climate and reinsurance costs meant insurance companies need to have a client on their books for three years before seeing a profit, and that was driving a hardening of attitudes on persistency

"Big changes are coming," he said.

Brooks refused to name the companies in question on grounds of confidentiality.

He said one company was considering barring 15% of the advisers they currently work with from its roadshows.

Brooks said he believed this new stance would see the insurers recognise three categories of adviser, those who write and retain the most business, who would be "treated like a king", those the insurer would want to work with to boost persistency and a third category they would refuse to work with.

Ginger Group chief David Whyte said severing all ties with specific advisers could backfire on insurers.

"If push comes to shove and you decide to terminate an advisers agency, you're guaranteed no business."

He said if an insurer left the agency in place - and provided competitive products and services - it would leave open at least the prospect of future business.

Insurance Savings & Insurance Association (ISI) chief Peter Neilson said the broad view he received from most of the companies he had talked to was that insurers, "would be expecting to make the greatest investment in the agents that were best at maintaining long term relationships with clients."

Sovereign's general manager, adviser distribution, Patrice de Marigny said Sovereign was not looking to change the way it dealt with advisers and they view persistency as "primarily an issue of how you're servicing a customer."

AXA general manager, wealth protection, Mark Ennis also denied AXA would be making any changes.

He said issues around persistency are reflected in adviser remuneration so that "it almost becomes self policing."

OnePath wealth distribution manager Jeremy Nicolls said that while the company is "continually reviewing how to best retain our clients and build partnerships with advisers" he said he couldn't comment on Brooks' remarks as he wasn't present at the seminar.

The chief executives of Fidelity Life and Partners Life were also contacted by Good Returns, but were out of the country and unavailable for comment.

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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Comments from our readers

On 26 August 2011 at 8:53 am Andy said:
The answer is simple: Get rid of the embarrassingly large up front commissions and pay a larger trail. That will allow agents to service clients properly, retain the business, and give the client a better deal. A smaller client base will also mean less work for the agent, who can the focus on his/her core business - LOOKING AFTER THE CLIENT with Financial advice. And by some strange coincidence, retention levels will increase...
On 26 August 2011 at 8:55 am Hoops said:
I find considerable irony in this action by insurers. Firstly. While insurance companies dont openly condone the moving of business they certainly dont discourage it ( just the opposite)
Secondly.While the emphasis for remmuneration is on new business and virtually without exception the market is driven at all levels by so called new business figures --- the behaviour of a good number of advisers will not alter.Hence low persistancy and unethical behaviour will continue to be rewarded.The ball is totally in the insurance companies court.How should it go --- the reason for the sale not any reason for a sale
On 26 August 2011 at 9:08 am Craig said:
I think David is missing the point entirely that the insurers have done the maths and they do not want these type of customers as they lose money on them. Only an idiot continues to throw money down the drain. Great call if they then reward the ones who maintain high persistency and professional service levels. Bring it on.
On 26 August 2011 at 1:32 pm tony said:
What? next, you will be telling me that clients change their companies as quickly as the underwriters do.
On 26 August 2011 at 1:58 pm trevor said:
Yep, here we go again,from what i can gather the old change of companies trick is doing the rounds again. Nothing to do with trips to gambling capitals or higher up fronts etc..Nope all based on the clients needs and good sound advise. I wonder if that 15% is a group ???.
On 26 August 2011 at 2:40 pm broker said:
As an insurer surely you have to earn the right to gain support from advisers? If you drop the ball in a number of areas and another insurer does it better what do you expect? It's a free market out there.
On 27 August 2011 at 12:37 pm David Whyte said:
With respect Craig, the insurers - or the smart one's at least - account for lapses in their pricing structure, and also DAC the upfront commission to ease the new business strain. Of course, higher persistency means higher profits, but if insurers genuinely wanted to stop the churn, they would follow the South African Life Industry practice and cease paying new business commissions on a replacement sale - for whatever reason. Sounds tough but it works.
On 27 August 2011 at 3:09 pm simon B said:
Before I sold my business last year, my renewals were over $200,000 and persistency never fell below 90% and was usually around 94-95%. I often asked BDMs as they came promoting their latest trip overseas and the new API target why we were never given credit for retention. It was always NEW BUSINES rules.
On 29 August 2011 at 10:06 am tony Vidler said:
excellent points David & Simon.

I have long wondered why an industry (Life insurance) where the client contract is essentially long duration, and the infrastructure and capital structure of the suppliers is designed to support the long-term nature of the business, why the insurers choose to determine success on short term measures of arguable merit?

Quarterly market share movements in percentage of new business written is the dominant measure of progress for most insurers. Perhaps percentage of in-force business gets a high recognition rate amongst most suppliers, but new business share is deemed to be the best measure of whether a company is progressing or regressing in the wider market.

As a form of success measurement it is completely at odds with both the structure and purpose of a life insurance company.

But there is an old line used in strategic remuneration planning that "you get the behaviour that you reward".

Perhaps the reward structures in the non-adviser parts of the industry are not actually aligned with the objectives of a life insurance supplier?

Would a supplier look, act and feel different if it's focus (and therefore its internal rewards systems) were directed towards things such as client satisfaction, successful claims ratio's, policyholder longevity and so on?
On 29 August 2011 at 1:20 pm Giles Thorman said:
Business retention is something that effects all of us in the long term. We all know of agents who have (and continue) to churn business for some very spurious reasons; it is something however I have no control over. ONLY the Insurer can decide whom they accept business from. I have notified a number of companies in the past about recidivist churners but have been ignored as seemingly New Business is King.
One point I would raise though David is I place clients with a particular Insurer for a competitive product in terms of the both the policy and its price. If the Insurer CHOOSES to have their product become uncompetitive (ie they do not update wordings retrospectively and their premiums rise above the market) and I go through all the same work as I did originally to get it rewritten, why should I not be paid for my time?
I do agree with Andy in the first comment made, if it was all done as renewal commission, it would not be a problem.
On 29 August 2011 at 6:31 pm Louise said:
Before the blame is placed squarely in the insurer's court in paying high upfront commissions, it pays to remind that most insurers offer an option to advisers to take less upfront and higher renewals. However this seems to be a less popular option.

I'm also pretty sure persistency is taken into account by some insurers when assessing commission rates, and or eligibility for incentives.
On 31 August 2011 at 5:29 pm Giles Thorman said:
With respect Louise, renewal commission will only work in any attempt to stop churning if it becomes compulsory and everyone takes renewal commission for every policy.
On 1 September 2011 at 10:29 am Regan said:
Is renewal commission a silver bullet? In the f n g world that is the model, but brokers will still compete with each other, still take a policy from one carrier to another and still focus on growing their book. If risk insurance goes to solely renewal based commissions it may reduce churn but by how much? One would hope that the number of advisers who churn their own clients is quite small, and there would be less or no incentive for them to keep doing it, but taking clients from outside your own book will likely continue as before.
On 1 September 2011 at 12:35 pm Giles Thorman said:
The problem with "churn" is costing in commissions of 150-200% up front and then paying it again two years later when the broker/agent moves it to another company. If this was done on a renewal basis the original insurer would have only paid 40-50% over the two years AND there would not be an incentive to churn for spurious reasons as you will get paid exactly the same with the new Insurer as with the original one.
On 1 September 2011 at 4:13 pm ray said:
yes, so the only reason to move clients will be to get better benefits for a cheaper cost, which is happening now, has happened in the past and will continue to happen in the future - so unless all companies offered the same product for the same price, they need to get off their high horse and come up with better reasons to make clients stay where they are!
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