So... the industry is back on the subject of commissions for life insurance. This was a hot topic a year ago and seems it’s back again. And some of the comments we made on this blog last year caused a stir!
This week there were articles in the NZ Herald and on Phil’s Blog. The discussion is once again about the level of commissions with one industry commentator saying “Brokers selling life... insurance are earning excessive commissions and ultimately the consumer is paying for it in higher premiums.”
A year ago some insurance companies were paying brokers as much as 220% commission to sell a life insurance policy and as far as we understand this hasn’t changed much. Sounds a lot, doesn’t it? But is it fair? Does the consumer pay at the end of the day? Is it sustainable? These are the questions being asked once again.
So what do we think?
One comment I read today from an insurance broker made an interesting point. He said “I reckon anything up to half the commission’s spent running around with forms, [personal medical reports], negotiation with underwriters, avoiding non disclosure and offers of terms”.
Yes, exactly. The problem is NOT that insurance brokers are being over-paid... the problem is that the traditional life insurance companies have made life so complicated for brokers that they end up having to work a lot harder than they really need to, just to make a single sale. The high commissions are just a necessary cost of business inefficiency. It all gets 'burned' up in wasted time. And at the end of it the consumer doesn’t win either – because the commission is simply factored into the price.
Pinnacle Life has solved a big part of this problem.
Most people realise that Pinnacle Life sells online - direct-to-consumer. But what many people don’t realise is that brokers also sell Pinnacle’s life insurance products – and with the products, they provide advice. Consumers don’t pay more if they use a broker, they get the advice thrown in and Pinnacle Life pays the broker. But the difference is that Pinnacle Life only pays around 1/3 of what those insurers with the deep pockets pay.
How does Pinnacle Life manage to retain its very good brokers paying them 1/3 of the industry rate?
Through its technology platform, Pinnacle Life enables brokers to issue policies to their clients in a fraction of the time – online.
Imagine... insurance broker leaving client and waving goodbye... client busy printing off a hard copy of his/her policy! Pinnacle Life’s brokers are probably making more money on 1/3 commission AND their clients get the lowest price in NZ. It’s just smarter business.
So, whilst we’re NOT against advisers being paid high commissions (because otherwise they couldn’t survive), we’re against the traditional life insurance companies using commissions and overseas jaunts (funded by the client) as a strategy to drive more sales. It begs the question… why can’t they offer some other real value-adding option… like better products, services or distribution processes that assist brokers? Wouldn’t that be of more benefit?
And what of the insurance brokers that don't sell Pinnacle Life products? Well, you'll need to ask them. Maybe they just need to do the math...:-)