Insurance advisers warned against cancellation cash grabs

umm....why not if it is fully explained to the client and you have done the hard yards for them, just in case something comes out of left field, why cant we have a bit of protection. Sometime the punter can be very fickle, bout time they were made accountable:{)

Seems that we (as insurance agents)are pretty happy to make say $5k - $10k for a couple of hours of work at times but get upset when a lapse happens for a couple of grand. If good business is written it generally stays on the books but if a client has to cancel (often cant afford premium after a negative impact/circumstances) they are probably not in a position to afford a fee equal to comm lost.
Put it down to a cost of business and move on as we have the ability to write more tomorrow.
I have never charged a fee for a clients misery - I'm sure that they are felling bad enough about other issues causing this result.

"Billy the Broker" never ever refer to your clients as punters,sometimes the clients can be fickle, and equally so can the broker eh Billy!

Agree with Andy!

The methods insurance brokers use to charge clients is an issue which is of growing public interest.The trend internationally is for regulation banning commissions and charging hourly fees. The outcome of this has often been bad for coverage levels and hard for brokers.
Given that the actions of the above style of cowboy brokers will eventually force the FMA is move on this, it would be very useful for the insurance broker industry to be a bit more pro-active and impose their own disciplinary process and commission rules before the FMA is forced to do it for them.
Seeing 'clients' as 'punters' or 'prospects' to be hard sold to for short-term profit is not a good place to start or a viable long term occupation.

Agree with Andy and Mike Naylor's comments. If a client does cancel their cover within the two year claw back period then the question has to be asked WHY?

Two years is not a long time in the grand scheme of things when we are talking about a life or income protection policy.

All of the insurers are now taking a harder line on persistency (who can blame them) as they don’t want agency agreements with advisers who sell a high average API per sale but then have all the policies drop off the books within a short space of time. This is not profitable business for insurance companies to write and pay commission on.

For an adviser to try and charge their client a fee for the lost insurance commission resulting from a claw back is frankly pathetic.

As Andy said above – move on guys, that’s life. Focus on your next client and perhaps make sure this time you actually sell them what they need and can afford.

amused.....i doubt really that insurance companies are bothered with persistency, to most of them it is all about new business written, regardless of what they tell you!

and with everyone jumping on the "online" bandwagon, then persistency is really going out the window as this business is not long term

i can't comment on individual circumstances with regards to charging fees for lapses, but i don't think it is a bad idea - what would be a better idea though, would be to charge the fee at the beginning while just taking a higher ongoing renewal - hence no writeback

where there is a will there is a way

6ftndr insurance companies are bothered with persistency, if you notice Onepaths recent commission focus is more on the persistency if an adviser, in order to get rid of the cowboys in the industry like mentioned in this article. Insurance companies need to change their method of commission rather than up front proportion out so that its paid monthly and on the basis of it staying on the books. Those advisers that look after their customer will be assured of regular income .

@Andy 5 to 10k for a couple of hours work, that's a bit excessive, you would deserve a lapse if you wrote a case that large in such a short space of time. You seem to have missed my point, where you have put good time into a family and at a whim they change their views and cancel...it does happen. Those are the ones who should pay a fee, total disregard for the work you have done..and those types do deserve to be called punters..@ mike get out of your ivory tower mate!! @ amused I note Asteron have improved their renewal commissions, up to 30% if you take less up front, now that is the way to go...punter or client regardless :{)

6ftndr - I've always been told that the insurance companies make no money as such on new business written but over time existing policies on their books became profitable (hence the claw back provision and its reason for being in the first place)

Agree with your comment about persistency levels for online business. Remember the online option takes personal responsibility on the part of the client applying for cover and as far as Kiwis are concerned taking out life insurance etc. ranks below the monthly SKY subscription now in terms of one of life's priorities. Sad but true for most in this country with young families.

We face the same challenges in the mortgage industry. I have often thought about a small fee should I get clawed back but it just creates more problems than solutions in the paperwork. Like someone above eluded to, its just a cost of doing business. With mortgages we sometimes spend hours on an application and get paid little, others we get paid handsomely for a small amount of work. Its swings and roundabouts and in a commission paying world you should provision for clawback as you would tax. You can often gauge if there is potential for clawback by getting to know your client and their intentions and key drivers. Regular communication also minimises the chances of it happening. At the moment my clawback is possibly 1% of turnover so I provision for it. If it happens, then you take it on the chin and move on to the next customer.

I have terms of agreement letter with my clients and they initial where the fee is charged for cancelled or reduced polices within 24 months of issue and sign it also.
Over the last three years when I have been doing this I have had 5 cancellations.
One was because they could no longer afford it due to redundancies (I charged no fee).
Three were because they had been advised by their bank that they had the better product and showed them comparisons of the products that they were cancelling to the ones that they were going to.
The fifth one was because his friend in his church advised him that the policy he sold was better. His friend gave him no disclosure statement, no BRA was completed, no advice from the friend saying that non Pharmac drugs were not covered anymore, that the policy was not guaranteed anymore plus other things also.
I charged all four a fee. All four questioned it. They all had a copy of the terms of agreement which I explained to them and they signed. I sent them another copy with their invoice. Two of the three that were advised by the bank stayed with me and the third stayed with the bank (I think that they became embarrassed that they had changed actually) BUT THE OTHER TWO PAID.
I have changed how much I charge over the years. From the actual amount of commission to be repaid to $2,400 per month reducing by $100 each month to now, which is $500 per adult in the first year and $300 per child reducing to $250 per adult and $150 per child in the second year. All plus GST.
It’s not about recovering the commission. It’s about having a deterrent from changing on a whim. Or from someone trying to sell an inferior product to save a couple of dollars per month. Or going on line and getting no advice.
Don’t be afraid to have terms of agreement. Explain what it is. Every clause, not just the fee clause. If they questions why the fee clause is in there, tell them. It’s to stop you changing products for no good reason. I have to repay the commission that is paid. And as it is of no fault of mine if you change to another adviser or a bank then why should I have to not get paid? Would you like it of you went to work and the boss said “sorry but the week of wages from six months ago we have to take back because the order we got that week was cancelled”. The clients understand and don’t have a problem with it.
Be upfront. Explain it. NO problems.

Seems like a lot of time and effort Andrew. For 5 write-backs over three years. Yet every customer has had the explanation and the details put to them. Sure it might have prevented a couple, but hey I just put the effort into doing the job better, not fussing over whether they might stiff me.

I find that keeps the bankers at bay better than threatening to charge a fee.
[EDITED]

I think tying a cancellation fee into the Commissionable earnings on Risk products is ridiculous. We all know NZ has obscene First Year commission levels (the highest in the OECD) so in almost all cases where an insurance product is sold, the earnings to the seller far exceed any “fee for service” they would be able to charge a client for their insurance ‘advice’. Andrew, who determines which process/ recommendation/outcome is better when one of your clients is given advice by another adviser and decides to take their advice over yours? Let me guess, you! You’re going to charge a client $1,600 (family of 4) where they may actually be better off elsewhere, and potentially wouldn’t have paid you anywhere near this as an up-front fee for your ‘advice’? I have no problem with advisers charging a cancellation fee but it needs to be linked to the value of the advice, not the big commission on the product/s you sold. A Terms of Engagement that says..... “I charge $XXX for my service which includes a thorough understanding of your personal circumstances and a written Statement of Advice detailing my recommendations to mitigate any risk exposures you may have. Where these recommendations result in insurance being placed with one (or more) of the Insurers I am authorised to place business with, I will receive commission from these Insurers. The actual commission rates received by the Insurers are detailed in Annexure A of this Scope of Engagement. Where commissions are received, I will waive this initial fee of $XXX. In the event that any products are cancelled within 24 months of their issue, I retain the right to invoice you for the initial fee for service of $XXX” …. Is a far better and more transparent process in my humble opinion. Works fine with my clients…

I'm with Dirty Harry on this one, why bother - just focus on doing a good job. I reckon you'd put off potential clients at the start with having them sign some sort of agreement to pay a fee if they cancel...