Zurich has been forced to defend its policy on paying protection commissions after criticism from a financial adviser on what he said is a stark change in the life company’s rules.
The product provider is demanding information about the financial state of Julian Pruggmayer’s company, Wolverhampton-based Financial Risk Management, and him personally.
Because Mr Pruggmayer has refused, Zurich has cut off its current five-year long commercial relationship with the adviser, and according to the adviser "will only work with him on less favourable terms."
Zurich has defended its stance, saying these are its “standard procedures” which it claimed are “very common industry practice”.
However two rival life companies FTAdviser spoke to stated they do not ask for this information from long-standing adviser clients.
Mr Pruggmayer told FTAdviser: “I had a letter from Zurich asking me to submit our accounts to them.
“I declined on the grounds we already submit them to the Financial Conduct Authority once a year with a statement of my personal assets.
“Zurich said, ‘if we don’t get this, we will stop [upfront] indemnity commission payments to you, and start non-indemnity terms where commission is paid over four years.
“When I complained, they told me they ‘like to know who they are dealing with’ and what risk they are exposing themselves to.
“The extent of the business I write with Zurich is such that I earned £114,000 in commissions from it in the last 12 months.
“But I have never had a policy lapse with them, no late payments, and the policies have all been in force for over a year.”
In a statement, a Zurich spokesperson said: “This is very common industry practice and something we have done for many years - nothing has changed.
“We find that the vast majority of advisers are happy to provide their accounts and a DPG (directors personal guarantee) when it is requested.
“Most understand that as the UIC (unearned indemnity commission) rises, we are taking on more and more risk as a business and therefore in order to manage this risk we ask to see the business accounts and ask for a DPG.
“However, if a firm is unable to do this it is not a problem, they are simply moved onto a non-indemnity basis, so they can still provide cover for their clients, however, they earn commission in a different way.
“We have explained to Mr Pruggmayer on numerous occasions the payment options available to him and that these are our standard procedures.”
However when FTAdviser asked rival life companies their policy on indemnity payments, they differed from Zurich’s stance on advisers where there is a long-standing relationship.
A spokesperson for Scottish Widows said it “sometimes requests director guarantees”, but only when putting new agencies in place.
A Royal London spokesperson said the life company “wouldn’t do ongoing credit checks to make sure we could still pay indemnity commission”.
“We would only do a credit check when an agency is first being set up and this is for the company (assuming they are not a sole trader) rather than personal assets.”
laura.miller@ft.com
