Advisers call on loaded premiums to be banned

Advisers call on loaded premiums to be banned

Some advisers have hit out against the loaded premiums some of their peers are reaping the benefits of, dubbing them “greedy” and some calling for the practice to be banned.

Loaded premiums are an additional percentage fee charged on the sum assured in a mortgage protection policy by the insurer each month. 

Independent advisers, networks, and firms can choose whether to use a panel of insurers which charges loaded premiums or not.

This percentage fee is distributed to a number of stakeholders, including the re-insurer, insurer, network, and the appointed representative firm or adviser - on top of their commission or fee.

Mortgage networks Openwork Partnership and Mortgage Advice Bureau both house brokerage firms which collect loaded premiums. Just Mortgages, a partner of Openwork, confirmed it is one such brokerage firm collecting it through its insurers.

Just Mortgages wouldn’t reveal the exact percentage, but said it was about “half” of what other big brokerages charge.

Similarly, MAB said it would not disclose the percentage charged, but that it’s “not significant” and just "a handful of pounds a month difference".

FTAdviser understands the fee can range anything from around 15 to 30 per cent of the standard premium a client pays. If a customer was paying a standard premium of £10 a month which was then loaded to become £13, over 20 years a customer is paying an extra £720.

John Phillips, national account director for Just, said “most brokerages” operate a loaded premium. But there are major mortgage networks, such as Primis, which do not.

Phillips said a loaded premium pays for a number of things “vital to the policy holder”. These include “intensive protection and mortgage training over three weeks” for brokers, as well as “ongoing, monthly, one-on-one training and supervision” to ensure they “know the protection policies inside out” and can “provide the very highest level of advice”.

But some advisers were not satisfied with this explanation. Tom Baigrie, outgoing chief executive and founder of protection provider LifeSearch, said: “It’s a way of earning more from providing protection advice. The only justification I’ve seen is policyholders ‘paying for a superior service’.

“I don’t get a feeling that there is a better service or that it improves customer outcomes - such as fewer lapses. That, for me, is shocking. I think they should be banned.”

Determining 'fair value'

In its submission to the Financial Conduct Authority on the new consumer duty, LifeSearch said loaded premiums were poor value for money. 

“Inflating a customer's premiums to make more money doesn't demonstrate fair value,” said Baigrie, who added that LifeSearch “gets lots of business from customers with loaded premiums who look online and see lower prices”.

An FCA spokesperson has since clarified its stance on fair value to FTAdviser: “[This] means a fair relationship between the price the customer pays and the quality of benefits and services they receive.

“Where advisers are involved in setting part of the price (for example, where they load commission on to the price quoted by an insurer) this must not result in the price no longer providing fair value.