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High upfront commissions likely to stay

Fidelity Life chairman Brian Blake says the government has missed an opportunity to force down commissions on life insurance policies.

Wednesday, October 28th 2020, 7:00AM 4 Comments

Fidelity Life chairman Brian Blake says the government has missed an opportunity to force down commissions on life insurance policies.

Blake says: "The failure to address high upfront commissions in the Financial Markets (Conduct of Institutions) Amendment Bill was a missed opportunity in our view.

"In a highly competitive market like ours, without regulatory intervention it’s unlikely anyone will significantly reduce upfront commission levels and risk losing market share," he says in the company's annual report.

He says Fidelity Life is confident it has adopted conduct and culture changes which meet the requirements of the Financial Markets Authority/Reserve Bank of New Zealand conduct and culture review.

The company will shortly be introducing an online adviser product accreditation programme, an adviser quality assurance programme and it has also developed good customer outcomes principles to help ensure Fidelity continues to meet the needs of its customers.

Further enhancements to its adviser proposition will be announced from early 2021, including some digital
initiatives resulting from its Project Watson IT development.

Blake says: "The resignation of chief executive Nadine Tereora in May 2020 was very disappointing but we’ve been able to quickly move on, promptly appointing Adrian Riminton (Chief Distribution Officer) and Simon Pennington (Chief Financial Officer) as joint acting chief executives.

"Adrian and Simon adapted very quickly to their new roles and have maintained momentum while the search for a permanent CEO continues. We’re making good progress with our search."

Fidelity Life, like other companies, has battled headwinds brought about by Covid-19, including increased pressure on new business, lapses and claims, and a fall in the commercial value of the 81 Carlton Gore Road building.

It has sold the Carlton Gore building and will move into new premises in Auckland’s CBD.

"As we explained at our last annual meeting, we need to make urgent and fundamental changes to our business if we’re to remain a competitive force in New Zealand’s life insurance industry,” Blake says.

"Fidelity’s 2025 Winning Aspiration transformation strategy is bold and ambitious and requires significant investment, particularly in our brand and technology."

Fidelity is expecting a significant impact from its income protection products where its discontinuance assumptions have gone from 9.5%-19% up to a new range of 7%-50%. The discontinuance rates for other products remain relatively unchanged from the previous year.

"We’re expecting a dampening effect on new business, further lapses as more New Zealanders face financial
pressures and a rise in the number and duration of income protection claims.

"In response, we’ve continued to take proactive steps, such as increasing our claims reserves, forming new alliances, revising our product offering and simplifying some of our reinsurance arrangements."

The months ahead are really important – successfully completing Project Watson, the enabler of our transformation, in the first half of FY22 will give us a strong base to build from

In the year to June 30, total comprehensive income fell from $20.7 million to $17.9 million. However, profit rose from $11.6 million to $17.0 million.

Insurance premium revenue increased from $275.47 million to $269.49 million and claims paid out rose from $125.7 million to $139.7 million.

However, commission payments fell from $57.37 million to $53.42 million.

The company’s earnings per share increased just over 10% from $8.73 to $9.62.

Of Fidelity’s 267 staff 118 are paid $100,000 or more. One employee’s remuneration was in the $1.05-$1.06 million band and the second highest was in the $520,000 to $530,000 band.

Fidelity says because the Reserve Bank has clearly advised all insurers that protecting capital should take priority
over paying dividends, no dividend would be paid this year.

The Reserve Bank "expects insurers to take steps to protect, if not build, their capital positions to ensure the industry remains in a strong position to support New Zealanders through Covid-19 and this time of economic uncertainty."

"The months ahead are really important – successfully completing Project Watson, the enabler of our transformation, in the first half of FY22 will give us a strong base to build from. It will allow us to use data and insights to develop compelling products, deliver great customer and adviser experiences, and reach new consumers through a strong New Zealand brand.

"Our transformation will deliver a number of long-term benefits, including strengthening our capital position."

Tags: Fidelity Life

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Comments from our readers

On 29 October 2020 at 8:09 am Backstage said:
The failure to address high board member payments in the Financial Markets (Conduct of Institutions) Amendment Bill was a missed opportunity in my view. Does he understand commissions and how these products are distributed. Try using the same money to advertise the stuff and see who responds. I wonder how much "life insurance" experience is now on the board?
On 29 October 2020 at 8:56 am Matron said:
It would appear that on the one hand @BrianBlake has missed all of the nuanced comments on the subject of high upfront commission in NZ, yet on the othet hand "Of Fidelity’s 267 staff 118 are paid $100,000 or more" and one is over $1m.

Past experience (think AMP) has shown that 'transformational change' are just words when that many chiefs are at the trough.
On 29 October 2020 at 10:02 am BayBroker said:
A question for Fidelity's Chairman Brian Blake

Let's assume for a second that upfront commisisons were reduced. What would Fidelity do? Move to a renewal model where the total commission paid for a product remained the same say for a period of 5 years, reduce the a low spread commission and pocket the savings, or as above and pass on savings to the consumer?
On 30 October 2020 at 10:00 am RWAW said:
Bay Broker my bet is the former i.e. pocket the savings. Fidelity like all other Insurers no longer run conferences and yet we haven't seen any decrease in premiums as a result of the savings. On another point Mr Blake trumpets their new alliances, I would suggest he heads down to the policy department and inspect some of the Replacement of Business Forms submitted by one particular Strategic Alliance Fidelity has. This particular group of people seem to specialise in sales with no regard to best outcomes for the clients.

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