'Indemnity drug is killing businesses'

18 February 2010 8:00 am | By Tracey Scott

Fortis Life UK managing director Martin Werth is calling for insurers to reduce the level of up-front commission paid to advisers, claiming it is like “heroin” for distributors.

Werth says indemnity commission should come with a clawback warning and predicts that unless providers reduce the level of initial commission, IFAs will go out of business as a result of clawbacks. He says: “One of the big challenges for distributors is about how we help them to build long-term profitable businesses and one of the big things I woke up to when I moved from a reinsurer to an insurer is indemnity commission. It really is the heroin of the distributors. The heroin-pushing providers are giving distributors indemnity commission but not ensuring they have got enough reserves to pay clawback. It is destroying businesses, not building businesses.

“We should all agree if we want to build long-term distribution relationships we must increase the level of renewal commission.”

Werth is suggesting increasing the level of renewal commission from 2.5 per cent payable on month 49 to at least 10 per cent payable from month 25.

Highclere Financial Services partner Alan Lakey says: “You could say people should not be on indemnity commission but it has been a fact of life for 40 years. To wean people off it, you have to have a commonsense approach but, given that cashflow has been hammered by the recession, the last thing businesses will want to do is give up indemnity commission.”

Thomas and Thomas managing director Darren Lloyd Thomas says: “We had to take the decision to carry out protection business on a set initial fee. This has sadly meant we now cover less protection business because many clients will not pay for protection advice but it stops the rot of huge initial commission.”

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