The commission rates on life insurance contracts are nothing short of disgraceful. The regulatory and disclosure requirements are much slacker than for investment products. The two together should ring alarm bells for any reasonable person. That these products and those advising on them are RDR-immune is, in my view, a travesty.
The size of the commission paid by the provider does not bear any relationship at all to the effort required to arrange and advise on the contract. To give you an example, earlier this year, I arranged a £4,000 annual-premium term insurance that would have generated £6,815 commission but I charged a much lesser fee. If that is not considered outrageous, then I don’t know the dictionary definition.
Moreover, it is also not so much the selling of life insurance, it is the assumption that this life insurance stays on the books that is by no means a given. Unfortunately, it is generally true that those who are pushed into purchasing something that they did not feel they wanted in the first place, even though it may have been to their best advantage, generally lapse the policy. This may be a satisfactory outcome for the adviser (provided it is not lapsed within the commission-paying period) and perhaps less so for the life office – again, provided that the initial costs have been overcome). If this is not a concern, then why would Aviva have recently publicised their review of adviser business in this respect?
The question that needs to be addressed and probably what Mr Waters did not bother to mention, is quite simply, how many 20-year life insurance contracts run for the full term – or for that matter, 25-year or 30-year terms? I do not have the figures but I am willing to bet that more than half do not see it to the end.
Itreally feels odd defending a regulator.