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Competition cited as a reason to cut commission

Insurance companies should cut their commission payments to advisers to enable them to compete more effectively with bank insurance channels, it has been claimed.

Thursday, November 5th 2015, 6:00AM 4 Comments

by Susan Edmunds

The suggestion is believed to be part of the Melville Jessup Weaver report into the insurance industry, being prepared for the Financial Services Council.

The report is rumoured to say that the bank distribution model is more profitable than the life insurance companies' model that pays commission. Bank staff usually receive a salary with bonuses for sales.

Many insurers pay up to 200% upfront commission to advisers.

Some offer less, such as Fidelity, which pays a maximum of 100% upfront plus renewal of 6% and 4% of ongoing service commission.

The MJW report is also believed to argue that the fire and general insurance model, with much lower commissions, delivers a better deal for consumers.

It also raises questions about the sustainability of commissions.

AIA chief executive Natalie Cameron said: "Different distribution models will have different margins. Banks benefit from having a large existing client base to market insurance to, and don't have the acquisition costs of some other channels but that does not necessarily mean commissions are too high in other channels, rather banks have synergies they can exploit.

"There are also benefits of advice given in non-bank channels and there is most certainly a place for advice outside bancassurance."

AIA offers advisers 200% upfront for insurance policies of more than $100,000 and then 5% renewal in the policy's first two years, 7.5% in the third and fourth years and 10% a year from the fifth year on.

Tags: Commission Life insurance

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Comments from our readers

On 5 November 2015 at 8:44 am billy the broker said:
What a misleading article this is.Based totally on rumour!! Great journalism!! Less finger pointing and more accurate information gathering please.!!!!
On 5 November 2015 at 10:18 am Tash said:
Reports reports reports - they deliver what the authors want them to deliver. One can't compare bank insurance products with real insurance company products like those sold by Asteron, AIA and Partners. Anyone who has made a comparison of actual benefits to policyholders will know what I mean. I'm willing to bet MJW, whoever he is, did not analyse bank product benefits compared to real insurance company products. Customer value comes from having claims paid when they need them, not from paying the cheapest premium or buying from "salaried" advisers - who most certainly do not work for free.
On 5 November 2015 at 12:54 pm Majella said:
This MJW outfit must have rocks in its collective heads. Can anyone out there take this poppycock as serious analysis of the costs & benefits of the different remuneration structures? All the standing costs that banks have against the self-funded non-aligned adviser businesses?
And, as I understand it, while the likes of ANZ have more business to write than they have RFAs to manage it, the bank products are non, or at least only lightly, advised, full of hooks & banana skins that catch out many claimants. It's bad for the industry as a whole.

As to the FSC, both large 'Bancassurance' providers are (at least currently) members. The FSC commissioned this 'report' and from the outset, many of us have expected it would be sham, a Trojan horse with which to attack the non-aligned advisory industry. Huh! No surprises here then!
On 6 November 2015 at 1:48 pm John_s said:
It's all well and good talking about insurers cutting commission, but who's considered the advisers' perspective? What are the economics of adviser businesses? Are they sustainable on lower commission terms? How do they propose the transition to "GI" terms will occur?
How can you make these suggestions without looking at the adviser's position?
Maybe the next report from the FSC?

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