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Robert Reid: ABI’s commission comments prove it is stuck in the past

Blaming commission for consumers’ negative perception of the insurance industry is a cop out

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It is a great life when those who perpetuated a market pregnant with bias suddenly pop up and tell us we are without value in the eyes of the consumer. 

I refer, of course, to the recent speech by Association of British Insurers chair and Axa UK group chief executive Paul Evans, in which he said commission paid to advisers is an “open sore” that continues to undermine confidence in the industry.

To be fair, he was referring to the insurance industry and perhaps this reflects the dawning realisation that selling direct to consumer is not as easy as many insurance company chief executives previously thought.

He then moved on to to plea for transfer without permission but with no mention of penalties being waived and charges reducing to benefit the end user. 

When advisers are taken off legacy plans and the renewal commission ceases, it does not benefit the client. Instead it remains with the provider. This is not impossible to fix nor is it impossible to offer the terms on existing plans.

Legacy plans were designed with the remuneration of the adviser and the profit of the provider in mind. The position of the end client was rarely thought of until a brochure was being developed. Flexible whole of life plans were a great example of this. They were not fit for purpose, given that the growth rate assumptions were hidden, as was the method of charging for life cover. We now have a steady stream of clients asking what can be done to maintain cover at a reasonable cost.

If the ABI really wants to help, then this product is one for the list. If it were possible to issue term cover with no medical details running to age 90, many would see it as a viable and attractive option. It is moves like this that win back trust far more than the pension contract upgrades.

There is clearly a fire fighting mentality at the ABI, which is never conducive to moving forward. It is better to do one or two things well than perform many tasks badly. That is a lesson it needs to learn quickly.

The ABI is stuck in the past with no strategic plan for the future. Evans had the chance to really push the regulator in a positive direction, yet all we got was deflection.

I recall interviewing the chief executive of a major provider some years ago and when I asked him where his firm would be in five years time he stated that he did not care as he would not be there. Far too many chief executives have the same view and it is that lack of forward thinking that has been the real problem. Blaming commission is a cop out; it is the lack of vision providers have meekly accepted that is the real issue.

Robert Reid is managing director at Syndaxi Chartered Financial Planners 

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. The only people who are looking long term are advisers and their clients. The ABI and politicians are just looking at where their next mealticket or promotion is coming from.
    We could instead say “when interviewing an MP some years ago,when I asked him where his country would be in five years time he stated that he did not care as he would not be there.”

  2. Stabilityplease 20th March 2015 at 12:04 pm

    not only don’t care – but do not carry any responsibility, accountability or liability when they have gone………

    Thank heavens for independent platform providers!

  3. Robert, interesting your comment about short termism at the top.

    Years ago I worked for a mutual who had the same chairman for over 30 years. When the old stuck in the mud retired, the Society became the forward thinking progressive basket case it now is………

  4. Robert, I feel the problem with Variable Whole of Life is that few advisers, particularly bank assurrers did not understand them. When I started with one Bank the go to life product was the old Maximum Cover (commission) Plan, an old style life whole of life cover/investment plan where the investment was designed to build up over the years to reduce the amount of cover needed in later life and by 85, designed that you saved up the sum assured thus giving whole of life. The variable type we introduced in 1992 where you could set the savings/protection amount within parameters. The commission was based on the premium, not sustainability. Thus, as it was a load cheaper for a set amount of protectionat max cover and minimum savings, than the previous plan, loads of advisers went back to their clients and flogged them the new cheaper one. Double Bubble, clawback was 9 months.
    The trouble is that max cover/min investment is not sustainable longer term regardless of investment growth. For older people who were sold these plans to mitigate IHT on a second life basis at max cover, there is little chance of the premiums being able to be increased at the level required, by the survivor as they have to pay for life cover as well as investments.
    Misselling really, but Shuuuush.

  5. Given the symbiotc relationship between advisers and providers that was necessary to place these policies in the hands of the general public, it is difficult to square that with the level of criticism directed at providers. A distraction by advisers maybe? “Not me guv…”

    I don’t recall anyone ever being forced to take commission (it could be rebated one way or another) or being forced to sell the products mentioned (there were lots of variations and if there wasn’t anything suitable you could do nothing).

    Indeed this article feels like an arms distributor having a pop at the manufacturer about its ethics… hmmm

  6. Robert, I feel the problem with Variable Whole of Life is that few advisers, particularly bank assurrers did not understand them. When I started with one Bank the go to life product was the old Maximum Cover (commission) Plan, an old style life whole of life cover/investment plan where the investment was designed to build up over the years to reduce the amount of cover needed in later life and by 85, designed that you saved up the sum assured thus giving whole of life. The variable type we introduced in 1992 where you could set the savings/protection amount within parameters. The commission was based on the premium, not sustainability. Thus, as it was a load cheaper for a set amount of protectionat max cover and minimum savings, than the previous plan, loads of advisers went back to their clients and flogged them the new cheaper one. Double Bubble, clawback was 9 months.
    The trouble is that max cover/min investment is not sustainable longer term regardless of investment growth. For older people who were sold these plans to mitigate IHT on a second life basis at max cover, there is little chance of the premiums being able to be increased at the level required, by the survivor as they have to pay for life cover as well as investments.
    Misselling really, but Shuuuush.

  7. grey area your analogy is incorrect its more like a drug pusher being criticised by a junkie. The promtional material for variable whole life has never really underlined the risks confirmed the growth rate assumed or stated that life cover is chargee each month on actual age not age at inception. I resent people who used commission as their only marketing lever to then blame those they encouraged to sell flawed products.
    the hypocrisy of providers lobbying regulators to stop commision inn an effort to increase their revenue whilst spinning a different tale does them no credit. Even if commission was rebated to the client I cant recall it being capable of reducing risk or cost. if the information had been fair and not misleading then your compariosn might hold water but it doesnt. Ethics is a ste of mind not an optional extra.

  8. @Robert Reid
    Neither the drug pusher nor the junkie is a manufacturer so that doesn’t work. Whichever analogy you choose the point is that the blame for these products ending up in the hands of clients rests with the manufacturer and the distributor.

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