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Ageas to carry on paying indemnity after £5m hit

Ageas Protect says the business will continue to pay indemnity commission despite suffering a £5.6m charge following the liquidation of a subsidiary of Click.

Money Marketing revealed last May that Fortis Life, which rebranded as Ageas Protect in January, was owed £900,000 in clawback by non-advised protection firm Click. The clawback was part of a payment plan to repay £1.2m of indemnity commission on lapsed policies.

It is understood subsidiary Click Financial went into liquidation in February after making over 130 job cuts between November and January.

As a result, Ageas Protect was hit by a one-off impairment charge of £5.6m, pushing its 2010 results down by 42 per cent from a loss of £7.2m in 2009 to a loss of £10.2m at the end of 2010.

Ageas Protect managing director Martin Werth says paying commission on an indemnity basis presents risks for both insurers and advisers but adds that the impairment charge will not change the company policy of paying indemnity commission.

Werth says: “We have to work in the way the market operates and while we should encourage the market to move to a more robust way of remunerating, you have got to work with the market if you want to be in a large part of the market and that is what we are doing.

“But we will always encourage our distributors to recognise the risks of indemnity commission and to make sure they properly provision for it and cons- ider how they transition from it. I am sure other insurers will be having similar conversations.”

Despite the loss, new annual premiums for Ageas Protect for 2010 were up by 52 per cent from £14.9m to £22.7m.

At December 31, 2010, Ageas Protect had a 6.4 per cent IFA market share compared with 4.3 per cent at the end of 2009.

The Ageas Protect business launched in July 2008. It now provides cover to over 120,000 customers, an increase of 90 per cent compared with last year.

The company says this was driven by its underwriting approach and product innovation. Ageas Protect has reduced the proportion of GP reports it requests from 14 per cent in 2009 to around 10 per cent in 2010 and offers terms within two working days for 85 per cent of applications.

Ageas Protect launched its Low Start term and critical-illness cover in January, which provides the same level of cover available through the firm’s menu plan but at a lower initial cost.

Customers buy the level of cover required at a lower premium which gradually increases at a guaranteed rate for the period of the cover.

Ageas Protect will carry out a review of the Low Start product with IFAs over the next couple of months to gauge the product’s success.

Werth says: “What we envisaged was for Low Start to enable IFAs’ clients to buy more of the cover they need at a price they can afford. What we want to see is whether that is happening in practice.”

Werth believes the recent European Court of Justice ruling banning the use of gender in product pricing will mean prices could fluctuate as insurers try to gauge how their business will be split between men and women.

He says: “We think there will be more uncertainty in pricing because insurers will be less certain about what their mix of males and females will be. Clearly, there is a difference in risk which has to be reflected properly in the premiums. We are going to take a more conservative view on our mix of business until we get a better feel for what the mix will look like.”

Overall, Ageas UK made a loss of £24.8m, including costs from claims related to bad weather and acquisition costs of Kwik Fit Insurance Services. This compares with a profit of £17.3m in 2009.

Excluding bad weather events and one-off costs, Ageas UK made a profit of £51.5m.

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Comments

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  1. We frequently hear cries and howls of anguish about the evils of indemnity commission.

    It is often suggested that ending the practice would resolve problems such as this. However, the problem was with the business model and the willingness of insurers to effectively extend unlimited credit to a business that was unable to display financial resilience.

    Indemnifying commission is purely a tool which some adviser will use to enhance business cash flow.

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