'No commission' structure doesn't translate
An insurance broker who is advertising a “no-commission” business says while it works well for fire and general insurance, financial advisers who deal in personal risk products have a different set of issues to contend with.
Friday, June 24th 2016, 6:00AM
by Susan Edmunds
Dan Donaldson runs InsuranceBroker.kiwi, a fire and general business that charges clients a fee, rather than accepting any commission payment from the insurer.
How much a client pays is determined in negotiation with them. Donaldson said he did not like to work with hourly rates because they did not create the right incentives, but tried to work towards a set price for each client based on their needs.
Donaldson said clients wanted more transparency. He said it did not make sense that what a broker was paid would vary with the movements of the insurance market – fire and general premiums have fluctuated over recent years, particularly as a result of the Christchurch earthquake.
“I’ve found that commission creates a conflict of interest around those cycles. Just because premiums have gone up doesn’t meant the broker has done more work. I would rather remove that from the discussion.”
But he said what worked for fire and general insurance would not necessarily transfer to life insurance products.
His firm works with life insurance advisers who charge commission.
Whereas fire and general works on 12-month cycles of cover, personal cover could be a lifelong contract, he said. “The commission structure on that side of the industry is very different. To be honest, it almost works better on that basis, given the nature of the contracts. What we do on our side of the fence does not translate to the other side of the equation.”
He said, for life cover, a high upfront commission incentivised advisers to “do the job right in the first instance”.
Some financial advisers do offer commission-free life insurance. Most insurers offer it as an option but only about 3% of advisers operate on a purely fee-only basis.
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