A story this week on commissions and soft dollar incentives paid to risk advisers caught my eye.
The story, it's here, is based on the independent report prepared for Tower shareholders in respect to GPG's partial takeover offer. The report is written by Grant Samuels and is strongly critical of the commission levels paid to advisers.
This should come as no surprise as New Zealand pays the highest commissions on life products of any country in the world (so we are told).
What is worth noting is that it isn't Tower making these comments, rather it is Grant Samuels.
As I understand it the company has been looking at a number of other life companies and had already come to this view about commissions before it walked in the door at Tower.
(This, I will note is in line with last week's Blog, which mentioned changes in the ownership of some companies in the financial services sector in New Zealand).
One of the issues for the life industry, and it is not a new one, is the commission amounts being paid. While there has been a bit of a competition in recent years to see who can give advisers and brokers the most, I hear that some of the leaders in this field have started to pull back.
This is good news and is something that is well overdue. It's time that commissions became more realistic.
Just for the record I'm not against commissions per se, rather the issue is having them at sustainable levels.
« Far-flung assets being flicked | Industry needs to be ready for a stall – or a rush » |
Special Offers
I read the article in question and am amazed at the incompetence of the writer. He claims the commissions for life insurance (among others) are too high and will cause price increases in the next 12 months. He then uses what appears to be fire and general and health insurance products (which is what I assume he means by "general insurance") as an example to justify this claim. He cannot come up with any examples of pending life insurance products about to go up due to high commissions. Further his claims are nonsense when one considers that the commissions paid on fire and general and health insurance products are much lower than on life insurance!
So the premiums of the very product that has the highest commissions are not going up only those with the lowest commissions. His gross ignorance of the industry is further shown by the fact that he doesn't seem to realise that it is the rapidly increasing claims history that is forcing up general insurance products and these increase have nothing to do with so called high commissions.
Hi
I'd like to add my 2 cents worth.
Everyone seems to like pointing the finger at life insurance brokers/agents as being overpaid, under skilled dinosaurs.
Well as one of those dinosaurs, I'd just like to say, when one of my clients is ill and can't work or can't afford surgery, it's not some analyst or government bureaucrat they turn to. They thank their lucky stars, that I came along.
This year two clients have died. Ask their families, if they think I'm overpaid.
Selling life insurance, isn't for the average paper shuffler, it takes determination, drive and the guts to do what's right. Only 20% survive their first five years.
For the professional 20% out there. Stand up and take a bow, because what we achieve, is so powerful and adds so much to the lives of our clients and society.
Overpaid? I don't think so.
So Grant Samuels reckons we are the highest paid commissioned insurance agents (CIAs) in the known world. I venture to mount an argument we NZ CIAs are not that highly paid. Examining the case of a 40 year old male. YRT rate of let's say a $1 per thousand. Most NZ insurers probably reinsure most of the exposure for our 40 year old at a cost of about $0.37c per thousand. I have ignored the policy fee. Therefore, $0.63 is left to pay the CIAs and the NZ insurers' costs and profit. My next assumption is the NZ insurer should be able to pay the CIAs an annual renewable commission rate of say 40% of the annual premium and still make a healthy profit. I also venture a guess the NZ insurer is still in the money if they pay a upfront of say 200% of AP and ongoing 5% renewal. No doubt an Actuary will show me the error of my ways.
© Copyright 1997-2024 Tarawera Publishing Ltd. All Rights Reserved
Life insurance commission levels are seen as the benchmark in commission payments generally across all financial products. I don't blame an Adviser for specialising in life insurance. Good on him/her!
Providers have made mistakes in the past by trying too hard to replicate the life commission levels inside investment products. Nobody thanks you for it in the long run. Advisers tend to forget the upfront commissions ever existed - and clients get rubbish returns and complain.
Overall, I have no stance on the level of life insurance commission, I just resent it being used as a bargaining tool when talking about investment products. It's like expecting an aardvark to lay a golden egg. It's highly unlikely because it would be very difficult to engineer manually and it is a completely different animal.