Loading premiums row splits industry
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Advisers and some product providers have hit out at the practice of loading premiums, where distributors are asking providers to inflate premium rates so they can take a higher slice of commission.
But other product providers argue that a small premium loading can be justified in certain circumstances.
Aegon head of underwriting and claims Matt Rann says: “We would not get involved whatsoever. We want to look after the customer and asking them effectively to fund higher IFA commission is completely and utterly wrong.”
Legal & General, Fortis and Axa also say they would not support this practice.
But Friends Provident head of protection Ed Stuart-Brown says there is a margin of 5 or 10 per cent where loadings would be acceptable to take into account the added value of the advice process and additional costs such as marketing.
Aviva protection director Richard Verdin says: “It is not unreasonable to assume the retail price of a lot of insurance products differs by channel, structure and other factors.”
Bright Grey proposition director Roger Edwards says: “If there were a legitimate reason why that was happening, perhaps an extra element of advice, I probably could not see too much wrong with it.”
Highclere Financial Services partner Alan Lakey says: “I deplore this practice. I do not believe it is appropriate to push up premiums from one originating source simply so distributors can take a higher level of commission.”
Personal Touch Financial Services director Dev Malle believes the practice encourages churn as when policies come up for renewal, advisers can easily rewrite the same policy and offer a cheaper premium.
He adds: “One of my big concerns is that if it were to go in the consumer press that certain intermediaries are accepting loaded premiums for higher commission it could be a very damaging PR exercise for the broker market in general.”
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Readers' comments (23)
Anonymous | 5 Aug 2010 8:33 am
Intermediary firms are frequently challenging providers to increase their LAUTRO rate and so pay them more commission. In a very competitive market, providers' margins are so tight that they can only offer the most favourable commission terms to the select few intermediaries who write the most business AND KEEP IT IN FORCE.
Asking the provider to increase your clients' premium to fund a higher commission sounds like the last refuge of a firm who have been turned down for increased LAUTRO rates for sounds commercial reasons.
Lets try to keep the good name of this industry by establishing some guiding principles over pricing and commission. Leave premium loadings for Underwriters.
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Sean | 5 Aug 2010 8:45 am
Friends Provident seems to have fallen a long way since its Quaker roots. I fail to see how one 'distributor' should have higher costs than another. Indeed this appears to be a blatant way of buying onto 'panels'.
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Anonymous | 5 Aug 2010 9:37 am
Maybe FP can;t condemn it because the distributor/network they own is a prime example of the practice....?
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Matt Kennedy | 5 Aug 2010 10:32 am
This is more to do with multi and single tied propositions than differentials in the IFA market, where commission has been determined by the old LAUTRO rates.
It's not uncommon for providers to have several products with identical features priced according to sales channel. If a provider wants to appear on a multi tied list, guess what they have to offer!
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Anonymous | 5 Aug 2010 10:41 am
Yet another scandal that shows just how poor the customer is served.
I do not buy the added service angle as all the networks are at it. It's just the Providers buying business again to the detriment of the customer.
Hats off to the Providers who do not support this. Perhaps we should draw up a list and just support those who do not offer this?
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John Jones | 5 Aug 2010 10:43 am
Well done to MM for bringing this out in the open. Provide a table of those who do not offer loaded premiums so we can congratulate them
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l | 5 Aug 2010 10:48 am
Where are the FSA on this? They spent millions on TCF so why are they not enforcing it?
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Anonymous | 5 Aug 2010 11:19 am
I work for an insurance co so i have to post this as anonymous
We are requested by distributors to increase the premiums by 10/15% and then pay additional commission.
It is a requirement to by on their protection panels. If you do not then you are excluded.
Bang out of order in my view but when management are asking for year on year growth for protection business then it will fuel the practice
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Lacey Jones | 5 Aug 2010 11:22 am
Does this not show that many network models are built on sand as their foundations? If this practice stopped then would some go bust?
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Gillian Cardy | 5 Aug 2010 11:50 am
This would be a good question for the Ethics paper ...
If when RDR is implemented your clients "won't pay fees" then covering the costs of your advice through enhanced commission rates on protection policies which are outside the RDR rules could be a neat way of sidestepping the tricky question of asking clients to pay for investment advice, whether by fee or by deduction from investments, especially for younger clients who may only have modest monthly savings to make but who perfectly justifiably need life and health insurance plans to protect their finances.
It may be used as a mechanism for buying panel listing, but if this means that all those consumers we bloggers are allegedly so concerned about continue to get advice, at extraordinarily modest incremental cost (check out nil commission life insurance!!), then we should think more carefully before dismissing this as a universally immoral and unethical practice.
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