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[Opinion] Risk commission future not all gloom and doom

Veteran insurance adviser David Pine says the sky won't fall in if life insurance companies are forced to cut commissions like their counterparts in Australia. 

Monday, July 20th 2015, 6:37AM 8 Comments

by David Pine

There is much wailing and gnashing of teeth on this side of the Tasman over recent decisions about risk adviser commission in Australia.

As I understand it, following a phase-in period of three years, up front commission on new business will be limited to 60% of the first year’s premium, renewal commission will be limited to 20%, and the adviser will have a three year responsibility period during which claw back of commission can be made.

Personally I think that’s not a bad outcome, as strange as that may seem. Sure, the 60% up front is a bit harsh, and maybe here in NZ we will come up with a somewhat higher figure. But the 20% renewal is excellent for building long term value in the adviser’s business. In fact it is very similar to the amount of renewal commission for a fire and general book in NZ.

During my 37 years as an adviser, the highest commission rate I ever received was 90%, from one insurer. All the others offered lower rates than this. And we did OK, in fact along with many other advisers, we achieved the MDRT qualification level on several occasions despite these relatively low commission rates (MDRT qualification is based on new business commission rather than API).

What I’m saying is that the sky will definitely not fall in.

One thing I do feel strongly about is the idea of extending the responsibility period from two years to three years. If we end up copying the Aussies on this one then I think there needs to be a graduated scale of responsibility, something like 100% responsibility for the first six months, 85% for the second six months, 70% for the third six months, 55% for the fourth six months, 40% for the fifth six months, and 25% for the sixth six months.

This is important because, through no fault of the adviser, a small number of clients will inevitably lapse or reduce their policies in the early years, for reasons such as separating from their partner or experiencing financial hardship. There is nothing an adviser can do about these events and it would be grossly unfair to penalise the adviser harshly for them.

If risk advisers are keen to maintain their current level of earnings in the new environment, the solution will be in their hands. And the solution need not cost them a cent. They simply need to find more prospective clients than they are at present, see more people, and write more business. They might need to work a few more hours a week, or work smarter in the sense of concentrating their efforts on those prospective clients they relate well to and who are likely to need insurance cover and can afford it. It’ll be a matter of thinking creatively about how they can do more business.

And if they do that, it will be good for them, good for their families, good for the communities they serve, and good for the whole industry. It is well known that us Kiwis are chronically under-insured.

As author J K Rowling says in her new book Very Good Lives:  “The knowledge that you have emerged wiser and stronger from setbacks means that you are, ever after, secure in your ability to survive. You will never truly know yourself, or the strength of your relationships, until both have been tested by adversity. Such knowledge is a true gift because it is painfully won, and it is worth more than any qualification you have earned”.

David Pine was an adviser in Wellington from 1973 to 2010. A life member of MDRT, he remains a passionate advocate for the adviser profession. David and his wife Marg are currently coaches, mentors and trainers to the adviser industry through their company Pine Financial (2010) Ltd. Their website is

Tags: Churn

« Churn debate: Reduce conflicts Advisers doing no-commission deals »

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Comments from our readers

On 20 July 2015 at 9:38 pm billy the broker said:
I beg your pardon you quote J K Rowling the biggest churner of all!! The remake of the Lord of the Rings. Please we are not stupid. How about the companies lower up front and maybe share the wealth with the renewal??
Why is 20% the norm for agents??
We all know the profit margins they make after about 4 years.Reduce commissions down to say 50% and offer 35 to 40% renewal. Easy fix and once written that contract should stay in place. As opposed to 180 to 230% upfront which leads to churn. Work it out for yourself!!

Oh I don't have a million dollar base to move and don't want those poxy free trips to have my ego massaged. Get with the programme, or you will muck it up for all of us!!!
On 21 July 2015 at 5:19 pm dcwhyte said:
Gee Billy - got a thistle up your kilt?

You maybe a first class broker, but I'd limit my comments on English Literature if I were you!

Rowling and Tolkien may write in the same genre, as with Sir Arthur Conan Doyle and Ian Rankin, but there the similarity ends.

Anyway, David's remarks about the sky not falling is broadly correct, and as it turns out, the issue appears far from settled in Australia.

The impact of upfront commission on retail pricing can be managed by various reinsurance arrangements; paying 35% - 40% renewal will be a straight addition to the retail premium.

Good luck explaining to clients that you caused the premium hike, because you wanted more commission!

And the smart crooks will see twisting a 40% renewal trail as a pretty tasty proposition.

There is, as yet, no empirical evidence to suggest that wholesale churning exists on either side of the Tasman.

Finally, Billy, tell me you've never been on one of those "poxy free trips"!!
On 22 July 2015 at 10:14 am billy the broker said:
Excuse me did IQs just drop around here!!

Didn't say I want more commission?? Less up front and higher renewal. As you would know Mr Whyte the profit margins on premium back to the company are pretty tasty after a few years. Just a thought was to spread the wealth to the broker who wants a sustainable income stream and looking at his client base long term.

As for no evidence on wholesale churning, I don't know where you are from but stories abound of whole bases being moved for the last decade young chap.And as for the trips read what I wrote.....I don't want them!!

As for the literary thing do a bit of research yourself. And I dont wear a kilt!!
On 24 July 2015 at 11:59 am dcwhyte said:
Billy - whichever way you want to calculate the outcome, the commission loading will be higher for higher renewal commission, unless you can persuade companies to drop their profit margins and reduce shareholder dividends. Good luck with that!

If the average is currently 150% + 10% renewal over 7 years = 220%; your request 50% upfront + 35% renewal = 295%.

I'd say you were asking for more commission.

From a research perspective, "stories abounding" is not evidence - and certainly insufficient grounds upon which to base any reliable conclusions, let alone regulate adviser earning structures.

So that you understand the need for accuracy in such polemic, the OED defines 'story' as "an account of imaginary or real people and events told for entertainment" - hardly the basis for supporting your assertion.

Also, I didn't ask if you wanted overseas trips - I asked if you had ever been on one?

Finally, literary works of fantasy derive inspiration from somewhere, including Tolkien. There are many similar themes that are found in all fantasy and mythological stories and the can be traced well before Tolkien wrote LOTR.

And it's a well know fact that only those with very high IQs are qualified to wear a kilt -- which is presumably why you don't wear one!
On 24 July 2015 at 9:20 pm billy the broker said:
dcwhyte..I like your style. Good numbers and you make fair points. Your first paragraph was what I was going towards and I do know it is really pie in the sky. Just a shame that the top of the layer cake glean the profit when its us at the coalface doing all the graft. I would say that my comments were not polemic but just a strong criticism of the current situation. Sure people are innocent until proven guilty totally agree. But a question please..what constitutes churn and really who are the offenders who should be really investigated?? I hear a well known totally NZ owned insurance company is chasing big writers to write for them with the added incentive of triple credits (for 3 months) and chunky commish to qualify for their overseas incentive overseas. If that is true that certainly looks like opening the door to churn my Kilt wearing friend. Kind regards from someone who prefers to have warm genitals.
On 26 July 2015 at 12:24 pm dcwhyte said:
Billy - with you all the way re the need to have 'churn' defined - and to name and shame the offenders. Block transfers, undisclosed incentives and similar, should be removed from the industry as, from the consumer's perspective, this merely renders all advisers unprofessional.

Here's a question - how many Proposal Forms with Replacement of Business forms attached have been sent back to the adviser due to inadequate reason for replacement? I'm thinking - not many!
Sonas 'is fad-saoghail leibh a Billy
On 26 July 2015 at 9:18 pm billy the broker said:
Quite like the remake of that fantastic series with those 2 new movies, but sorry to say I'm and Alien fan all the way....but concur with what you have written above you Vulcan lover you....!!
On 27 July 2015 at 5:18 pm dcwhyte said:
May the (Google) Force be with you!

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