- No (72%)
- Yes (26%)
- Not Sure (2%)
A meeting of senior industry advisers and life company managers has raised the prospect of restricting adviser remuneration on renewal life insurance business to level commission only.
This topic was one of a number of key issues discussed at the recent Million Dollar Round Table (MDRT) insurance industry meeting in Sydney, and forms the basis of our latest riskinfo poll, which asks:
Should adviser remuneration on replacement life insurance business be restricted to level commission only?
The argument in support of restricting adviser remuneration on replacement policies to level commission only relates to discouraging the unnecessary movement of life insurance policies for motives other than what may be considered in the best interests of the client (ie to restrict the practice of ‘churning’).
There exists a small percentage of advisers who ‘churn’ life policies after the original responsibility period has ended in order to access another round of upfront commission on effectively the same business.
this practice … can potentially lead to rejected future claims
In addition to not being in the best interests of the client, this practice also reduces the average term of life insurance policies and can potentially lead to rejected future claims due to non-disclosure occurring during the replacement policy application process.
On the other hand, it was noted that within the general insurance industry, the practice of churning policies continues, even though all general insurance remuneration is paid on a level commission basis.
Naturally, there are many instances where it is in the best interests of the client to change their insurance policies, due to changed employment circumstances or product innovations or changed personal circumstances.
Should advisers who are providing this service for their clients then be restricted in their remuneration options simply because the new policy replaces an existing contract?
What is your view? Should only level commission be paid on replacement insurance policies in order to dampen the incidence of churning?
Or does this penalise the majority of advisers who prefer upfront commission remuneration models, who are simply acting in their clients best interests by changing their policies?
I am currently in the process of going through client files to find our clients that have old Legal & General trauma policies as the definitions for claims are much more restrictive than a new policy. I am acting in their best interests and have a duty of care to advise them their product is no longer the best available – why shouldn’t I get paid for the work involved in getting these policies replaced their is just as much work involved as a new client walking in the door?
We have a large book of all the types of Life insurances ,built up since 1972.
Our policy is for clients to remain with their existing policies where practible. It is most helpful in claim time when a policy has been owned for say 10 or so more years. Our actual average time a client holds on to their existing polies is over 15 years.
However policies do become outdated, expensive and as you say clients occupations, incomes change quite considerably and their existing policies are no longer adequate and also quite often the policy can not be increased due to the numerous changes of the existing insurer.
We find though, the work required to replace a policy is just the same as if writing a new client and the level of commission does not cover our upfront costs in the first year.
I understand that some insurers experience a switch in the 13th month of new policies of up to 40%. If this is realy so, it is expensive and this should be reduced some how as it does have a cost factor in premium rates. However the insurers need to find another way than just paying level commission for replaced policies, as these advisers who churn as a general practice will find another way around it. Also it appears that insurers don’t appreciate the work that is required to replace a policy.
That is why I vote not to introduce level commissionfor replacement policies.
Whilst not a member of the dealer group myself, I personally like the Genesys model for risk (assuming it’s still the same. They had a deal with their preferred insurers where a claw back would occurr in the first 3 years of the policy.
Why can’t insurers agree to something like that?
You could do it at the end that’s losing the business – 100% first year, 75% second, 50 third and maybe even 25% fourth year.But only apply it to policies that are written as full upfront or hybrid comm.
Given that nearly all policies have guaranteed upgrades these days, there is less and less need to rewrite for premium reasons alone. Even products that are turned into legacy policies are not likely to outdate that much over 4 years.
My business partner has been telling me to write level comm for ages now, but I only do it sparingly. He has been doing it for 5 years and it has made a huge difference to his recurring revenue growth.
Our industry is always changing. If you don’t change with it or even before you have to, you are just making it harder for yourself by trying to hang onto something that you are losing grip of bit by bit.
If there “There exists a small percentage of advisers who ‘churn’ life policies after the original responsibility period has ended” as quoted above, then why should the great majority of advisers who don’t churn be penalised?
The problem of ” churning” can be solved by the life offices themselves if they paid level commission to those advisers who do operate that way. They know who they are but don’t/won’t act as it is production and new annual premiums on THEIR books.
Leave the advisers who do the right thing alone. We have enough Government Depts, agencies, press and consumer groups against us now without the Life Offices as well.
Today I replaced a 12 year old Term super which had non-binding beneficiaries,separated wife as nominated beneficiary,TPD cutting out at Age 60 and no reinstatement of Life cover 12 months after a TPD claim.Plus included another Term Life without any beneficiaries or Waiver of Premium option and in total saved the client $92.00 per month.He was very happy. I’ve been trying to see this client for 2 months and if I was only being paid level commission I probably haven’t covered my costs let alone the extra time arranging Bloods etc for the new application. We are the only industry which is talking about allowing others to say how we should be remunerated . I’ve never delivered a claims cheque where the client or his widow has complained about the amount I was paid for arranging the cover.
Let me start by saying that,CHURNING has been around in this industry since day dot.The Life companies have endeavoured to control the AMOUNT of business being churned by introducing retrospective upgrades to there policies on the books.We as advisors can no longer say,we replaced the policy because the OLD policy does not offer the level of benefits the new one does etc etc.The way to help stop churning is for ALL Life companies to REFUSE to deal with those advisors that continually churn without JUSTIFIED reasons.
Poor insurance companies. They provide more competitive rates and benefits in order to increase their market share, so when we do our job as required by ASIC to look after the interests of the client, they want to pay us less for doing so. If the adviser has a reputation for churning then get rid of the adviser. Why penalise the decent hard working people. I work for the client not the insurer. My allegiance is to my client.
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