Insurance
Insurance advisers warned against cancellation cash grabs
Monday 7th of January 2013
The warning comes from Financial Services Complaints Ltd. (FSCL) chief executive Susan Taylor, who said the disputes resolution scheme had dealt with 10 cases where an adviser had attempted to charge clients substantial fees when cancelling a policy within the first two years.
“It’s not necessarily reasonable to charge an amount equivalent to the two years commission that the adviser will lose, because we’ve seen instances where they’ve basically said we’ve lost $3,000 worth of commission so that’s the fee.”
“We have seen cases where they’ve [the client] been charged several thousand dollars,” Taylor said.
She said that while charging a cancellation fee was perfectly legitimate, advisers risked problems if such a fee was not adequately disclosed or relative to the service they provided the client in obtaining the cover.
“They would have had to spend an awful lot of time with the client to justify a fee of that magnitude,” Taylor said.
“There is nothing wrong with charging a fee provided that the fee is very clearly disclosed to the client at the time they take out the insurance, not buried in the small print of the client agreement. There, in plain English and drawn to their attention.”
Taylor said that of the 10 complaints received, one was formally upheld while the others were settled through negotiation via FSCL.
Neither the Insurance & Savings Ombudsman nor the Financial Dispute Resolution scheme have receive a complaint on the issue.
Comments (6)
Mike Naylor
The methods insurance brokers use to charge clients is an issue which is of growing public interest.The trend internationally is for regulation banning commissions and charging hourly fees. The outcome of this has often been bad for coverage levels and hard for brokers.
Given that the actions of the above style of cowboy brokers will eventually force the FMA is move on this, it would be very useful for the insurance broker industry to be a bit more pro-active and impose their own disciplinary process and commission rules before the FMA is forced to do it for them.
Seeing 'clients' as 'punters' or 'prospects' to be hard sold to for short-term profit is not a good place to start or a viable long term occupation.
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11 years ago
Simon Rule
Agree with Andy and Mike Naylor's comments. If a client does cancel their cover within the two year claw back period then the question has to be asked WHY?
Two years is not a long time in the grand scheme of things when we are talking about a life or income protection policy.
All of the insurers are now taking a harder line on persistency (who can blame them) as they don’t want agency agreements with advisers who sell a high average API per sale but then have all the policies drop off the books within a short space of time. This is not profitable business for insurance companies to write and pay commission on.
For an adviser to try and charge their client a fee for the lost insurance commission resulting from a claw back is frankly pathetic.
As Andy said above – move on guys, that’s life. Focus on your next client and perhaps make sure this time you actually sell them what they need and can afford.
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11 years ago
Simon Rule
6ftndr - I've always been told that the insurance companies make no money as such on new business written but over time existing policies on their books became profitable (hence the claw back provision and its reason for being in the first place)
Agree with your comment about persistency levels for online business. Remember the online option takes personal responsibility on the part of the client applying for cover and as far as Kiwis are concerned taking out life insurance etc. ranks below the monthly SKY subscription now in terms of one of life's priorities. Sad but true for most in this country with young families.
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11 years ago
Craig Pope
We face the same challenges in the mortgage industry. I have often thought about a small fee should I get clawed back but it just creates more problems than solutions in the paperwork. Like someone above eluded to, its just a cost of doing business. With mortgages we sometimes spend hours on an application and get paid little, others we get paid handsomely for a small amount of work. Its swings and roundabouts and in a commission paying world you should provision for clawback as you would tax. You can often gauge if there is potential for clawback by getting to know your client and their intentions and key drivers. Regular communication also minimises the chances of it happening. At the moment my clawback is possibly 1% of turnover so I provision for it. If it happens, then you take it on the chin and move on to the next customer.
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11 years ago
andrew smith
I have terms of agreement letter with my clients and they initial where the fee is charged for cancelled or reduced polices within 24 months of issue and sign it also.
Over the last three years when I have been doing this I have had 5 cancellations.
One was because they could no longer afford it due to redundancies (I charged no fee).
Three were because they had been advised by their bank that they had the better product and showed them comparisons of the products that they were cancelling to the ones that they were going to.
The fifth one was because his friend in his church advised him that the policy he sold was better. His friend gave him no disclosure statement, no BRA was completed, no advice from the friend saying that non Pharmac drugs were not covered anymore, that the policy was not guaranteed anymore plus other things also.
I charged all four a fee. All four questioned it. They all had a copy of the terms of agreement which I explained to them and they signed. I sent them another copy with their invoice. Two of the three that were advised by the bank stayed with me and the third stayed with the bank (I think that they became embarrassed that they had changed actually) BUT THE OTHER TWO PAID.
I have changed how much I charge over the years. From the actual amount of commission to be repaid to $2,400 per month reducing by $100 each month to now, which is $500 per adult in the first year and $300 per child reducing to $250 per adult and $150 per child in the second year. All plus GST.
It’s not about recovering the commission. It’s about having a deterrent from changing on a whim. Or from someone trying to sell an inferior product to save a couple of dollars per month. Or going on line and getting no advice.
Don’t be afraid to have terms of agreement. Explain what it is. Every clause, not just the fee clause. If they questions why the fee clause is in there, tell them. It’s to stop you changing products for no good reason. I have to repay the commission that is paid. And as it is of no fault of mine if you change to another adviser or a bank then why should I have to not get paid? Would you like it of you went to work and the boss said “sorry but the week of wages from six months ago we have to take back because the order we got that week was cancelled”. The clients understand and don’t have a problem with it.
Be upfront. Explain it. NO problems.
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11 years ago
Regan Thomas
Seems like a lot of time and effort Andrew. For 5 write-backs over three years. Yet every customer has had the explanation and the details put to them. Sure it might have prevented a couple, but hey I just put the effort into doing the job better, not fussing over whether they might stiff me.
I find that keeps the bankers at bay better than threatening to charge a fee.
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11 years ago
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