Sovereign explains its cuts to adviser commissions
Advisers who sell Sovereign life insurance products are unlikely to earn lower incomes even though the company has cut upfront commissions on some policies.
Monday, May 24th 2010, 9:34PM 
2 Comments
by Jenha White
Last week Sovereign announced it was lowering commissions and increasing premiums in response to the impact of coming changes to tax on insurance funds.
Adviser up front commissions for term life insurance YRT will be cut from 230% to 200% and premiums will be increased by 15% in response to life insurance tax increases which come into force on July 1.
If you assume a policy with premiums is $1000 a year, then commission paid at 230% is $2300.
The same policy after the tax change would see premiums increased by 15% to $1150 a year and commission paid at 200% would still be $2300.
Sovereign chief executive Charles Anderson says if adviser commissions had not come down, then advisers would have benefitted from the tax change by receiving more commission.
"This would not have been acceptable in the context that Sovereign is trying to deal with insurance tax increases equitably."
He says that this is not the case of all companies, with some increasing premiums which means advisers will have a net gain with bigger commissions on bigger premiums.
"We didn't feel that was an acceptable position."
Anderson says there could potentially be less business for life insurance advisers when the tax increases come in because of affordability issues with the premium increases.
"It is likely advisers will either sell fewer policies, work harder, or the money people pay for premiums won't increase or customers will decide to have less cover."
He says taking the likelihood of less business into account, Sovereign tried to create a compensating mix with its changes, by not making advisers better or worse off with the changes.
The premium increase only applies to new business and Anderson says Sovereign will not be making any changes to its existing book on 1 July.
"Our initial response was to not increase premiums in the spirit of wanting to support our customers, we didn't want to go out aggressively when we didn't have to."
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
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Comments from our readers
The only difference between what Sovereign said in the HOTLINE, and here, and the way the media put it is the media dressed it up differently.
Sovereign's message was the same in the HOTLINE and this article.
I'm not an employee of Sovereign. I support them because they suppport the market place with leading edge customer care and products.
What you're anonymously proposing is stirring.
We don't need that in this market with FSP, FAA, and who knows what's around the corner!
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