Insurance
Cut your commission to compete, says Sovereign
Wednesday 25th of January 2012
While Sovereign sets the standard commission rates, the company said advisers are able to reduce their upfront commission percentage to in turn provide a reduction in premium to the customer.
Sovereign said this was known as ‘variable commission' and that advisers can select this option at the point of sale via the Sovereign quote software.
One adviser - who wished to remain anonymous - compared The Warehouse's premiums with ones in Sovereign's adviser software.
In each of the six cases (see below), the same level of cover was cheaper via The Warehouse.
"As a broker this greatly concerned me that we have always been assured quite categorically by Sovereign throughout the years that whatever distribution model they happen to choose, they will charge one rate and one rate only," they said.
The adviser also examined how far they would have to reduce their commission to compete with The Warehouse prices by comparing figures they inputted into the Warehouse website with Sovereign's quote software for brokers.
"On some of them you had to rebate everything, it was up to $250,000 [of life cover] you have to repay everything in order to match The Warehouse premium."
The adviser said it wasn't until reaching life cover of $500,000 that "you only have to rebate 60% [of your commission)]."
Sovereign adviser general distribution manager David Haak said the differing commission was down to The Warehouse.
"They [advisers'] shouldn't be worried because at the end of the day the actual model we use is the same and the underlying rates are the same as we use in the adviser market, it's just the commission that's changed."
He also said if advisers wanted to compete with the lower Warehouse premiums, they can "compete by cutting [their] commission to the same levels as The Warehouse."
| Sum assured |
Premium |
Premium Warehouse |
Difference |
| $100,000 | $43.95 | $35.63 | $8.32 |
| $200,000 | $78.52 | $64.72 | $13.80 |
| $250,000 | $94.36 | $78.25 | $16.11 |
| $300,000 | $109.24 | $91.29 | $17.95 |
| $400,000 | $133.43 | $113.85 | $19.58 |
| $500,000 | $152.44 | $133.41 |
$19.03 |
Table supplied by adviser. Data from Warehouse website and Sovereign's adviser software tool. Premiums monthly.
Comments (15)
Brent Lewis
Once the banks take over these insurance companies, the whole game starts changing. The response here, just shows how much they are about the adviser force.
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12 years ago
Simon Rule
Well said Mortgage broker since 1999. I could not agree with you more!
Still can't fathom how a QFE adviser (Sovereign, AMP etc) has that conversation with their clients? "Well there's an insurer available in this instance with a better product etc but I have to place you with Sovereign to keep my QFE status" Clearly it doesn't even come up for discussion does it?
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12 years ago
Gareth Dobson
You pay for what you get - no real financial advice, no port of call if a claim is triggered and the potential of a rejected claim through non-disclosure. Fair Go is going to have a field day with this one.
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12 years ago
Ron Flood
Amused, why would a QFE adviser have to tell their client's that there is a better product. The legislation only requires that they provide the client with a product that is "fit for purpose" and act in the interest of the client.
It is up to the client to search out the better product. As long as the QFE adviser has told the client of the restricted product line they can offer, they have fulfilled their obligation to that client.
If the client decides to buy the product there is no problem.
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12 years ago
Ray Storey
A question for some of you- not everyone shops at Pak n Save. Why?
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12 years ago
Simon Rule
Herein lies the problem with the QFE adviser model Ron. Clients are automatically pigeon holed towards a product that is good remuneration wise for the adviser/QFE itself but may not necessarily be in the client's best interest. The expectation that clients should then "themselves” search out the better product makes a complete mockery of the "advice" process that is supposed to accompany recommending cover in the first place. As a client why would I persist in dealing with an adviser who says to me I have to do my own homework if there is a better product/insurer that they can’t offer me? Sorry!
I guarantee you now QFE advisers will not be the ones writing all the new business in the future. Younger clients will simply not tolerate this "one flavour of ice cream" approach that some insurers (Sovereign & AMP) seem to think they can still shovel. Independent advisers who can give their clients access to "multiple" insurers and products will flourish whilst those that are content to sell just one insurer’s product will wonder why they are not busy. Isn’t this a bit of a ‘no brainer” business wise for advisers selling insurance??
P.S. To quote the legislation on this subject is all well and good but I’d like to see a client’s response to this attitude.
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12 years ago
Ron Flood
Amused. I think you have underestimated the Sovereigns and AMP's of this world in thinking they will operate the same way in the future as they have in the past.
I expect that they are very aware of the need to have innovative and market leading products in order to survive in the future.
Advisers who choose to operate in the QFE space will still be able to offer top end products as long as the product providers keep up with market trends.
In my experience the number of "Independent Advisers" who actually use the "multiple" insurers they have access to is not great. Most will have a lead provider with 3 or 4 others picking up the balance of their new business.
With regards to the advice process, this
does not necessary extend to telling the
client there is a better product available elsewhere. It requires you to give the client the best product you have in your range of products to solve their need. If you do not have a product that provides a solution to their needs then it is up to you to advise the client accordingly.
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12 years ago
Simon Rule
Ron my point was that I don't believe the bulk of QFE advisers would actually advise their clients if there was a better product that suited their needs elsewhere. Ethically I have a major problem with that stance from an adviser sorry (them covered by legislation regardless) hence why I would never align myself to one provider only. As another reader posted above QFE advisers are the ones that need to think long and hard going forward what's more important - their own best interests or their clients? Regulation will indeed make life interesting now for some of these advisers with the complaint process available to consumers. Of course many advisers aligned to a QFE genuinely have no knowledge of what other products are available to their clients elsewhere in the market. This is truly sad and makes me wonder do they really care about their clients or not?
Having recently witnessed AMP's stance when it comes to giving client's "choice" where they go for their cover I am sorry to say it's business as usual at AMP. No choice.
Sovereign I would concede as been innovative but AMP? Sorry, no. Look at who wrote all the new business last year and where did AMP rank in the scheme of things? There is a good reason why AMP are well down the list and most advisers recognised this when making a recommendation for a provider.
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12 years ago
Giles Thorman
This blog was about Sovereign supposedly offering different rates via different distribution channels, something I would suggest is VERY important for everyone in the Industry regardless of whether you are an AFA, RFA or deal via a QFE. Why do people insist in entering into private philosophical discussions about completely different topics? I very much agree with the points raised by bewildered above and would love to see a response from Sovereign, Ron and Amused can you not phone each other up??
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12 years ago
Ron Flood
Amused, well said. I share some of your concerns that some clients may not be given the true picture when dealing with advisers that are limited in the products they can provide.
I am sure that the next 2-3 years will throw up some very interesting case studies that will keep the regulators busy.
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12 years ago
Simon Rule
Indeed Ron. Indeed. Let us hope that going forward clients do get advice that is not just beneficial to the QFE advisers themselves. I encourage all those advisers that are aligned to a QFE to get out of their comfort zone and re-educate themselves on what newer insurers are able to offer their clients in regards to improved features and benefits. You might get a real surprise and of course where it’s appropriate you can place your client with a new insurer which will see you rewarded for your time and diligence.
Ron as you point out the regulators could potentially have a field day with cases whereby a client was not told at application time that there was a superior product available to them that their adviser could not offer them. An example of this would be the recommendation of a health insurer that didn’t offer non Pharmac drug cover. Client then suffers a serious health issue 2 years in the future requiring expensive non Pharmac drugs and their insurer won’t help pay for the treatment. How could an adviser live with themselves knowing that they could have seen their client with an insurer that would pay for this treatment? I very much doubt that the client will see the adviser’s ignorance of what other insurers were offering as an excuse.
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12 years ago
Giles Thorman
Ron and Amused........do either of you read anyone else's submissions?
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12 years ago
Ron Flood
Skeptic, I would love to phone Amused but like you, Amused also chooses to post anonymously.
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12 years ago
Ron Flood
Skeptic, yes I do but the thread started by Amused interested me more. I am not in the least bit concerned about cost cutting of Sovereign's premiums through the warehouse.
If the cost of distribution is less costly for them, let them go for it. I think there are far to many advisers out there more worried about protecting their patch rather than give good advice.
The client's who buy online through the warehouse are most likely not clients who would buy through a broker anyway.
We can offer our client's advice when purchasing and support when claiming. Both are benefits that the Warehouse can't compete with.
Studies in Australia recently showed that people who purchase online have significantly less cover than those who use an adviser.
If in the future I start getting a number of my prospects buying on line rather than taking my advice I may start to be concerned. Until then the show goes on.
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12 years ago
Giles Thorman
Hi Ron, not ignoring you only just seen your response. My concern here is that Sovereign seem to be operating two levels of premium. That is a very dangerous precedent; will you be concerned when your clients can get a cheaper policy via the ASB than they can from you..... even if you cut your commission to zero? If clients wish to purchase on line I have NO concerns, but I expect the Insurer to offer the same cover for the same price.
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12 years ago
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