[Weekly Wrap] What's in a name

RE: Kepa... and more importantly the badly written articles in the Sunday papers. Putting aside the journalists badly written unresearched piece, Jeff commenting on churning... and for that matter Ed Saul... I challenge Pinnacle with "no credit rating" to take no more business that is replaced, which is their whole model.

I also challenge Jeff to take no more revenue from any piece of business replaced (bye bye Partners commissions)... the adviser is the adviser.. not the insurer or a dealer group.. they are not face to face with a client.

Whilst I do not (as most advisers I associate with) condone replacement for the sake of it, there are legitimate occasions where it is done... aren't these groups meant to be there for the members?

We all know the importance of the consumer.. we do not require "member bodies" to inflame nonsense and agitate consumers with badly researched articles and statements.. perhaps Kepa needs to hire a PR company in the first instance.

Observer, you raise a really interesting point (comment from the weekend paper) “upfront commission rates were phenomenally high”. My understanding, and I may be wrong here, was dealer groups all received additional commission from insurers. Is that not how they fund themselves, or do advisers pay a levy to belong? Genuine question.

So, if Kepa represents 700+ advisers, and additional commissions from insurers are being received – where does that leave the consumer? Is this distribution method itself driving up the costs of insurance? Poor consumer….

First time contributor, so excuse my naivety. It was an interesting article in the paper regarding churn, it struck a cord, something upon reflection I think I have experienced over the last 15 years.

No problem with the insurer, just a recommendation from the advisers every 3-4 years.) What does worry me, as a blue collar worker, with 4 kids, stay at home wife is the constantly increasing cost of insurance.

Can someone let me know how much commission is paid on average to advisers, how does this impact my premium, who makes the money? Observer what do you mean by take no more revenue? How come I can buy online and receive rebates, e.g. Lifedirect.

My adviser never rebated anything to me. Curious

C Woolery. Good to see that consumers are reading these posts and hopefully the following will be of some help.

With regards churn, I would hope that the reasons your adviser helped you change companies was related to the type of benefits you required that were not available on your current policies at that time.

With regards the increasing costs each year for your cover. The main reason for this is that premiums increase as we get older. The risks increase with age and unless you have elected to have level premium cover, the cost increases.

As your children get older, your needs and level of cover should reduce so it is important you review your needs regularly.

Regarding commissions to advisers, this can range from 140% to 220% of the first years premium if commission is taken 'up front', or as low as 20% - 30% if the adviser elects to take a level commission for the duration of the contract.
The commission cost does impact on the cost to the consumer. If no commission was paid,then the cost to the consumer would initially reduce by around 20% - 25% depending on the type of cover.

Over time however, the cost would increase as companies rely on volumes of business and if no commission was paid it would not be a viable business proposition for someone to enter the Insurance Industry. Lower volumes of business would then lead to companies having to increase premiums to cover administration and claim costs.

Another consequence would be the reduction in the types of benefits companies would provide. Many benefits are complex and companies rely on advisers to market these benefits in layman terms to clients.

The reason Life Direct can rebate commission is simply because they can survive on the remaining 140% - 200% they receive as they don't have to spend hours with clients evaluating their needs and making recommendations as most advisers do.

I would suggest that the fact you didn't receive or were offered a rebate by your adviser will be offset by the valuable advice and recommendations you received.

Mr Woolery

Always good to see the general public come along for a read. Welcome.

Many advisers review their clients’ needs every few years. Such would usually be considered the mark of a good adviser. From time to time a new product, significant changes in your needs, or a move in pricing and sometimes a combination of all of the above will result in the adviser recommending you change your insurances. Upon comparing your new needs with other insurers, you may find a better deal with a different provider. We see the same thing happening every day in the Fire and General market, and even in the Energy sector (with the blessing and encouragement of various parties such as "What’s my number?” etc) but there seems to be very little kickback about that.

For a little balance have a look at Russel Hutchinson’s blog here
http://www.chatswood.co.nz/moneyblog/2014/07/insurance-switching-activity-it-isnt-all-the-advisers-fault.html

The reason may be that the remuneration models can be regarded as somewhat at odds with the advice model. In the case of Fire insurance the commissions are similar both across the insurance companies, and from year to year. In the case of life insurance the commission when a policy is issued can be up to 200% of the first year's premiums, with the second and subsequent years "trail" commissions being typically about 5 - 8% of your annual premiums. This can lead to advisers having a conflict of interests when reviewing your cover, and may explain why over a period of 15 years you have been shunted around several different insurers.

For the last three years advisers have had new regulations to comply with, not least of which are disclosure requirements and also new complaint processes too. If you don’t clearly see value for you in making the change, you should question it.

The impact of commissions on premiums is this: They account for around 20% or less of the overall cost of your policy. Whether you buy online from the likes of Pinnacle, or via a banker or adviser, somebody is allocating that 20% to "distribution". The insurance companies pay advisers commission and other incentives for finding them customers. Banks might pay their staff a salary, but head office will have a deal based on commissions with the insurer, and they often have bonuses and targets for their staff. In the case of Pinnacle and other online sources they spend lots of money on advertising and slick websites, all the while telling you how great they are for not spending that money on commissions. Life direct’s “rebates” are simply a discount by another name. Except true discounts don't have their kinds of strings attached – read the fine print!

Finally I would like to address the question of rising rates, and at the same time tell you about a different commission model which many advisers are already adopting. The solution may lie in taking some of your cover on 'level premiums'. This type of policy has a higher initial premium, but your adviser (perhaps someone different!) can show you how this structure can save you money over time. If your adviser takes a lower up-front commission option that pays higher trail commission, they won’t feel the need to recycle your policy every 4 years, and you will be able to enjoy the long-term benefits of level premiums, and not changing your provider again.

Other industry providers, participants and commenters please keep any responses to this forum. There are good reasons people are sometimes reluctant to put their real name on here.

Cheers
Regan