High net worth planning firm, Hewison & Associates, has announced it is eliminating risk insurance commissions from its business as it moves to a fee for service model for all client advice.
The wealth management firm will rebate all risk commissions to its clients and charge a fee for the advice it provides to establish the policy and review it annually.
… fee for service on insurance advice is key to unlocking the underinsurace problem
In moving to fee for service on insurance advice, founder and CEO, John Hewison, challenges the broadly-held notion that this will place insurance out of reach for more Australians and contribute to a worsening of the underinsurance equation. Rather, Mr Hewison contends fee for service on insurance advice is key to unlocking the underinsurance problem.
By way of example, Mr Hewison presents a client scenario where service fees over time will save the client money compared with the same cover taken under standard commission arrangements.
However, in speaking to riskinfo, Mr Hewison concedes not every client scenario would be financially better off under fee for service and that specialist risk writers may well see commissions as the more cost effective model for their clients.
Mr Hewison also argues that operating under a fee for service model reduces the prospect of conflicts of interest. For example, as an individual moves through different life stages, their insurance cover needs may reduce, “… but often this creates a conflict for the advisor as it reduces their commissions on the insured amount,” said Mr Hewison, adding:
“When there isn’t the conflict of commission attached clients can feel confident knowing we will find the best and most affordable outcome for them.”
Mr Hewison said the move to a fee for service model on insurance came after a decision by the firm to take back in-house its insurance advice following the termination of a risk broker outsourcing arrangement that did not produce satisfactory results for the firms’ clients.
He said the termination of the most recent broker outsourcing arrangement was the latest in a series of unsuccessful broker relationships his practice had experienced over many years. He added that he believes life insurance business is now easier to administer with the advent of online insurance application and underwriting technologies.
Commissions are driving up the cost of life insurance
Citing the recent Lifebroker Life Insurance Research Report 2010 (see Naivety is Main Reason for Underinsurance), which highlighted cost as one of the major reasons consumers didn’t take out life insurance, Mr Hewison said “Commissions are driving up the cost of life insurance and we strongly feel that this is an area that must be addressed by the regulator if we are ever going to change perceptions and solve the problem of under-insurance in Australia.”
News of Hewison & Associates’ move to eliminate risk insurance commissions follows the announcement last week of a similar initiative by Godfrey Pembroke, which will transition to a full fee for service model, including insurance advice, over time.
