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Loading premiums row splits industry

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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There are 24 comments at the moment, we would love to hear your opinion too.

  1. 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.

  2. 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’.

  3. Maybe FP can;t condemn it because the distributor/network they own is a prime example of the practice….?

  4. 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!

  5. 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?

  6. 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

  7. Where are the FSA on this? They spent millions on TCF so why are they not enforcing it?

  8. 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

  9. Does this not show that many network models are built on sand as their foundations? If this practice stopped then would some go bust?

  10. 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.

  11. Sorry but if this is seen as a swerve around the principles of RDR ( whether you agree with them or not) then I think that it is the quickest way to get protection back into the claws of RDR and have commission banned

  12. A client gets offered aprice by an adviser and they are made aware of the commission payable. If the client feels this is fair they will take it out. What is the problem? Why do fee charging advisers all charge different amounts? Its because they offer different levels of service. The client will decide if it’s value for money. Plus if you haven’t got a loaded rate, you will be cheaper so you should (from above arguments) get more business.

    It is not the provider that is at fault. The adviser is putting commission rates first!

  13. I feel that we are being mislead by the comments from certain providers above. Contrary to head of underwriting, Aegon DO provide ‘this’ network with loaded premiums, as do both Fortis and Axa.

  14. Anthony Bruchez 5th August 2010 at 2:00 pm

    pipe down

  15. I think the only people who do not or cannot do this is thing are pruprotect and bupa

  16. The issue is nothing to do with commission rates – all providers are free to agree whatever commission rates the adviser can negotiate. Until such a time that all providers agree a common commission structure this diversity will continue.

    The issue, surely, is that some firms or networks are saying to providers we will only use you if you pay us “X” and to achieve this commission level the provider has to increase the premium level for this advisers clients.

    It is true that this is a potential black eye for the industry and might well encourage the FSA to rethink whether protection should escape the RDR depredations.

    This is a TCF issue and, as Gill says, an ethical issue. Can it be right that an adviser refuses to do business with a company unless it receives “X” commission?

    The providers are to blame for seekin g out volume business at the cost of sustainable quality business.

    I do not know who does and does not agree this practice and it would be unfair to list those known culprits but doesn’t this, more than ever, point towards a common agreed commission menu where advisers are free to take less but not ask for more?

  17. This practice also condones misuse of the term independence. Because these network protection panels are suppsoedly representative of the market advisers using them can continue to call themselves indpenedent, when the only benchmark for the providers to get on them is extra commission. In some cases this involves extra commission and extra premiums.

  18. I may be wrong, but i think there are two different answers to two different questions at play int the article here. And both answers are probably correct.

    If the question was, to a provider: “If an IFA came to you and asked for one of his customer’s premiums to be loaded, over and above the commercial arrangement he has in place, just to get a bigger slice of commission, what would you say?” the answer, I would suggest across the industry would be ‘no’. However if the question was: “Do you (product provider) have commercial agreements in place, or would you consider commercial agreements, for some distributors where they would receive more than ‘standard’ whole of market commission rates?”, the answer would probably be ‘yes’.

    So FP and Bright Grey are probably right in answering ‘yes’ if they were asked the second question. And aegon, L&G, Fortis and AXA are also probably right if they were asked the first question.

    The point is, they are two very different questions.

  19. To try to dress up, what is an obvious ploy, as recompense for an improved service or degree of advice is a clear pulling wool over the eyes to say the least in the majority of cases.

    It is widely accepted that good quality advice makes protection business more sticky, so hence the need for increased commission does not stack up.

    Better retention should decrease the need for more up front commission per plan, not the reverse. If anything, the need for indemnity commission for such solid models could also be debated long and hard!

    If anything, loaded premiums make the business less likely to stick irrelevant to the degree of advice.

    The easiest thing to do to waiver a clients loyalty to an adviser is letting them know that the product they are paying more for, can be bought cheaper elsewhere.

    If tax and trust advice is being offered by the adviser as a matter of course, then there could be a debate that this is valid but how often does this actually happen?

  20. you are wrong, the whole point is that providers will answer yes to the first question (for all clients of certain networks)

  21. The 2-question point above is correct – as we all know those who said ‘no’ do offer different premiums in different channels.

    However I am surprised by some ‘IFAs’ arguments on the misleading headline about ‘loaded premiums’, given that all premiums – even the ones they use are ‘loaded’.

    The only unloaded rates offer nil commission – is that what you are arguing for?

    Why do you assume that the current IFA prices and IFA commission are correct they and that any deviation either up (loaded) or down (discounted) are wrong?

  22. The issue re the last comment is that the cusromer is bieng asked to pay a higher premium so that the IFA can enjoy a higher commission – that has to be wrong as the only reason why this is occuring is to fund the networks so providers get onto the panel

    iIf an IFA sacridces commission then this is their decision with their client

  23. Referring to a previous article regarding Click’s outstanding debt to Fortis due to ‘unforeseen’ clawbacks, it amazes me that they are now loading premiums on their new preferred CIC provider, Pru-Protect.

    In a non-advice capacity, customer service and price is king as their are no fees chargeable, so is it not just blindingly obvious that they are once again going to be hit with a series a clawbacks when customers realise they are being ripped off.

    It’s a vicious circle which will then result in them owing Pru large amounts of clawback money and ultimately moving on to another ‘preferred provider’ to do exactly the same thing.

    I completely agree with a previous post on page 1 – why has the FSA invested so much money into TCF but then won’t take action against blatant disregards or fairness.

  24. have now followed the thread – let’s look at the facts

    FACT: there is no evidence to suggest that the customer experience is any better from intermediaries with loaded premiums

    FACT: there is no evidence of better persistency rates

    FACT: there is no evidence of lower cool off rates

    FACT: there is no evidence of better NTU rates

    So why is it happening?

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