Anti-commission argument not winning: Ballantyne

Partners Life boss Naomi Ballantyne has questioned the motives of a new report that suggests insurers could improve their fortunes by moving away from a commission-driven distribution model.

Tuesday, May 17th 2016, 6:00AM

by Susan Edmunds

Naomi Ballantyne

The NZIER report was delivered to a panel discussion in Auckland last week, hosted by Sovereign.

It said insurers’ policy acquisition and maintenance costs were high, at more than 40% of total annual premium income (API). Those who used advisers had acquisition costs up to 100 percentage points higher.

The report said pressure was going on insurers because the market was not growing and the only increase in API was due to the lives already insured becoming riskier and more expensive.

“The financial data indicates that life insurance distribution costs average about 44% of premium revenue. Just over half of these costs are commission payments," it said.

"The level of costs combined with the lack of growth in the market gives life insurance companies as a group a strong incentive to identify and develop lower-cost distribution channels. However, the strength of this incentive will vary from company to company depending on difference in the cost of each company’s distribution model.”

Partners Life chief executive Naomi Ballantyne said the report was not an accurate reflection of her company’s experience. She said Partners Life, as a new company, was paying the largest chunk of upfront commission compared to existing business in the market and was profitable.

“The cost of running a life insurance company is defined not just by commission but how efficient you are, how effective you are at retaining customers and acquiring new business, managing claims. If you get it right, it can be a very profitable business.”

She said the problem with a commission focus was that it was not clear how much commission would be seen as acceptable.

“How much do you think the cost of distribution should be? It will always be the biggest cost because it’s more expensive than keeping customers. But every new customer creates an existing customer. I don’t think this helps anyone. It reads again like it’s been seeded by similar interests to those who seeded the MJW report.

“Someone wants to drive commission down but I don’t think they are winning with MBIE.”

Asteron Life spokeswoman Kate Smeath said the company supported fair and reasonable compensation for advisers.

Asteron thought the report had overlooked its direct business, the impact bank-related acquisition costs had on total costs incurred by some product providers and the increasing costs of compliance for advisers.

She said nearly 40% of all new business written with Asteron in the 2016 financial year was on spread commission terms, not upfront.

Tags: Asteron Life insurance Partners Life