Future proof business from up front commission cuts

Up front insurance commission will possibly come down by a third looking at Australia says TOWER Health and Life chief executive Steve Boomert.

Tuesday, December 7th 2010, 10:46AM 2 Comments

by Jenha White

He advised delegates at the Newpark conference to future proof their businesses by dialling down the level of upfront commission they receive and to increase the level of renewal they receive to increase the value of their business before changes come about.

He said a lot of the industry changes coming through in New Zealand have already happened in Australia such as removal of a beneficial tax environment and changes to prudential and adviser regulation. There are also possible further changes to solvency capital.

He said a lot of New Zealand businesses are owned by Australian companies which understand the implications of the changes, with pressure being put on costs and therefore up front commissions coming down.

Boomert however, believes that if advisers can get the value of their businesses to grow at the same or a better rate than premium growth, the industry will have great fundamentals.

He said up until last year total life insurance premiums were growing at 8% or 9% per annum. Last year they grew by 7.5%.

"I have no doubt at all that if the industry gets its act together and tackles the issue of under-insurance in New Zealand, then in the next 15 to 20 years this industry can grow and premiums can grow at 10% - in Australia it runs at 12% per annum."

He suggested advisers think about the metrics of their business.

"My advice is to think about valuation - there's nothing more crystallising then seeing what you've actually built when you want to sell your business."

Boomert believes it's good for a business to look at the valuation fundamentals of their business every year.

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

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