From the middle of next month, advisers will receive trail remuneration structured as a set fee per client, instead of a percentage of annual premium.

The health insurer said that was designed to better represent a fee for ongoing service to those clients.

Advisers who signed clients up to Southern Cross tier one policies before August 18 would receive $200 a year per client. Clients added after August 18 would generate $135 a year for the adviser.

Upfront commission rates will lift about 5%, which Southern Cross said was designed to acknowledge the increased work required in selling a new product.

Adviser Jon-Paul Hale said the insurer had “completely wiped the retail value of adviser books”.

He said the move would wipe about 50% to 75% of the remuneration his business would receive to service a typical middle-aged client. “A 5% increase in sales commission is tokenism. It’s insulting.”

He said some advisers would need to switch to an hourly-rate model to service those clients because the amounts offered by Southern Cross would be insufficient. “It barely covers the cost of answering the phone and taking the time to fill in the claim form.”

The idea of a fee tied to a particular client flew in the face of general understanding that an adviser’s total commission package was designed to cover the cost of catering for all clients as and when required – not specific individuals, he said.

Hale said the move indicated Southern Cross wanted to be in the group space. But in making the change it was effectively exiting the market for the 97% of New Zealanders who did not work in business big enough to offer health insurance schemes, he said.

Another adviser, Regan Thomas, said the wider question for the industry was whether Southern Cross was simply the first “cab off the rank” to make the changes. “What problem are they trying to solve here?”

Advisers would end up adding new clients whose trail commission would never grow, he said, which meant the amount going to an adviser business would decline over time. “The value of that client will never increase.”

He said it sent a signal that Southern Cross did not value advisers.

Insurance commentator David Whyte said it was symptomatic of wider change in the industry and advisers should expect to see more tweaks that would affect their business models.

Other insurers do not look to be rushing to follow suit.

Fidelity Life has told advisers it will not change its commission structure at least until mid-next year.

In a statement, nib chief executive Rob Hennin said it had no plans to make any changes.

“Clearly we need to be mindful of the conduct and culture oversight of the regulator, and any future legislation that may impact adviser remuneration, but we respect the provisions of our intermediary agreement with advisers and value the role advisers play in helping New Zealanders protect their health and wellbeing.”