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AIA changes commission, clawback structure

AIA is increasing its standard commission rates and changing its clawback structure.

Friday, September 5th 2014, 10:25AM 6 Comments

by Susan Edmunds

From October 1, advisers with net annual new premiums up to $24,999 will be paid 150% in upfront standard commission.

Between $25,000 and $49,999 the rate will increase from 105% to 165%, between $50,000 and $99,999 it will increase from 170% to 180%, and advisers who place more than $100,000 in net annual new premiums in a December 1 to November 30 year will be paid 200%.

Advisers will also receive commission for renewal business, regardless of their production level, of 5% for year one and two, 7.5% for years three and four and 10% for five and over.

AIA has replaced the optional renewal commission with “Pendulum commission".

AIA says that advisers could choose to swap their commission structure for this option on a case-by-case basis. It gives much higher renewal commissions, which improves the value of an adviser business.

Pendulum gives upfront commission of 110% and then annual renewal commission, after year two, of 25%.

AIA chief executive Wayne Besant said it was a small adjustment to the commission structure. “It’s not a radical overhaul but it’s to make sure we’re relevant in the IFA market.”

AIA has also changed its clawback structure. It still applies for two years, with 100% clawed back in the case of a cancellation in the first 12 months, 50% in the next six months and 25% in the following six months.

Sales manager Graeme Edwards said the new structure was designed to be simpler.

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Comments from our readers

On 5 September 2014 at 12:37 pm zak said:
Good luck AIA on your approach to growing your business. The last few years have been a little rocky but our practice believes you are genuinely committed to improving all aspects of your value proposition.

Commission is just a start and we look forward to the improvement coming in underwriting, claims and product. The market is always better off with active competition especially when underwriters life the game to grow their business.
On 6 September 2014 at 12:31 pm Bay Broker said:
I am always welcoming of competition in the marketplace, but commission can't be the only driver. In the case of AIA I've done nothing with them for years, the sales team has been disbanded, the product management team has gone, and goodness knows who does the underwriting and claims. Until these areas are addressed then this surely must be the last roll of the dice. I have heard through sources the ISI stats show a continual decline.... anyone comment on this?
On 9 September 2014 at 2:22 pm Mike Naylor said:
As mentioned in previous discussion, increasing upfront commission is a dangerous game for AFA advisers, as the FMA will be suspicious and demand the adviser proves the increased commission had no part to play in decisions of which insurer they placed clients with. The FMA will jump on any volume bonuses. How is this 'relevant to the IFA market'?
If AIA both increases upfronts and increases trails this must make their policies more expensive or their profit less (and therefore unsustainable), so how can an adviser justify their choice?
A better, more professional approach, would be to decrease upfronts and increase trails (revenue neutral), as this induces advisers to work to retain clients without changing premiums. The Pendulum system is very a weak approach.
Alternatively AIA could improve conditions or offer innovative policies as other insurers are.
As Bay Broker mentions, increasing volume bonuses smacks of desperation (e.g. Malaysia Airlines) and what adviser would dare to put their clients there, in the face of FMA questions?
On 10 September 2014 at 11:54 am Adviser said:
Commission is the last thing on my mind when analysing a clients situation and finding the best product that suits their needs. To suggest that we just recommend the insurer who pays the highest upfront commission is a bit old isn't it? Perhaps a better issue to raise would be advisers who have a restricted product offering to recommend to their clients - bank staff, tied sales forces etc...
On 10 September 2014 at 12:36 pm Ron Flood said:
"Increasing upfront commission is a dangerous game". Says who?

AIA are simply trying to compete in a market where their upfront commissions have been less than other providers.

The FMA should worry more about a company offering "innovative policies" paying as much as 220% upfront commission with a claims paying rating that states "Very Good security, but capacity to meet policyholder obligations is somewhat susceptible to adverse economic and underwriting conditions"

AIA have an "Excellent financial security rating with the capacity to meet policyholders obligations is strong under a variety of economic and underwriting conditions".

Please, don't get me started.
On 10 September 2014 at 4:18 pm Ray Lewis said:
Couple of questions Ron.

What powers do the FMA have over insurance companies?

The quotes you refer to in regards to claims paying ability, where are these taken from?

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