Advisers predict more delayed commission payments

Stuart Gregory, managing director of Lentune Mortgage Consultancy, told FTAdviser he has endured “several months of frustration” as his small broker firm continues to struggle planning around the delayed commission income.

L&G changed its policy in August last year and now pays commission only when the first premium is paid. The insurer said this was a “deliberate move” to combat the administrative “headache” of commission clawback if policies are cancelled. 

But Gregory argued the administrative headache has now been placed on advisers, who are left to chase up the insurer to find out when they’ll be paid.

He said the change added “further unnecessary delays to receipt of funds”, suggesting in “many protection cases” advisers already have to wait 3-4 months for medical underwriting to complete before a policy even goes live.

“It does matter when you may have been waiting for three months or more for medical underwriting to add another month. How can firms plan for it?," he said.

He continued: “We're a small firm, so it's an inconvenience with planning. But if we had 10 or more advisers, I could imagine it would potentially cause big admin problems including cashflow.”

Consistently paying commission when the first premium is paid is a deliberate move from Legal & General to try and make the administrative process of writing business much more seamless.Craig Brown, L&G’s director of intermediary insurance

Gregory also pointed out the insurer releasing commission was only part of the payment journey, as networks had to then process it before it could reach the adviser. 

But he predicted L&G's move was a sign of what's to come. 

“Very few insurers hold back payment to brokers until the first payment, but I expect more to follow L&G’s lead.”

The Association of British Insurers did not want to predict the future and simply said: “Adviser and insurer agreements are a commercial arrangement between them and will vary across the market.”

No standardised methods

Other protection advisers said they have experienced similar wait times and suggested a standardised way of getting paid could help firms. 

Lewis Shaw, founder of Shaw Financial Services, said: “There doesn’t seem to be a standardised way of getting paid, having dealt with companies [in the protection industry].

“It’s unbelievable that in this day and age there isn’t a standardised method when we have all this technology out there."

Shaw is a one-man bad, but he acknowledged the difficulty some larger broker firms will be facing where 25 brokers may expect payment the next month but the commission simply isn’t there.

Generally, if an insurer pays the premium the month after the policy goes on risk, Shaw finds he’s waiting 4-6 weeks for commission. But even then, he has endured 3-4 month wait times just for the policy to go on risk, he said.

“General insurance is even worse. A policy would be put on risk, and then I’d get £90 five months later. There’s so little remuneration in general insurance, so I just refer it off now.”

‘A few weeks difference’

Craig Brown, L&G’s director of intermediary insurance, told FTAdviser an estimated 160,000 protection policy applications are cancelled each year before a premium is collected. It is this figure which drove L&G to change its commission process.

Brown explained: “Along with additional policies that are amended, this creates considerable work for all involved when it comes to client communication, commission clawback, reconciliation statements and paying new commission.

Very few insurers hold back payment to brokers until the first payment, but I expect more to follow L&G’s lead.Stuart Gregory

“This means that optimising efficiencies has become even more important, especially for intermediaries, many of whom are smaller operations working with tighter margins and a more restricted cash flow.”

He said L&G’s decision to consistently pay commission when the first premium is paid was a “deliberate move” from the insurer to try and make the administrative process of writing business “much more seamless”.

“It only amounts to a few weeks difference,” he added. “But has so far played a big part in removing some of the administrative and financial headaches that come hand in hand with changing policy applications as well as assisting with fraud prevention.”

Some advisers, contrary to their peers, agree with insurers like L&G. Sam Marriott, a business protection specialist at Towergate Health & Protection, told FTAdviser advice “isn’t great” in the protection industry at present. 

“Commission shouldn’t really matter if you’re acting in the best interest of the client, especially if you’re confident it will be paid out,” said Marriott.

“I’m on the provider’s side. I can understand the cancellation rates and the fact the majority of advisers base advice on price and not what’s best for consumers [in this market].”

Marriott said tiering could be a good solution, suggesting a start-up with a clean slate and not a lot of capital could be paid after a policy is put on risk and if cancellations increase their commission payments can be delayed after a direct debit or two.

But Gregory argued advisers “couldn’t be more heavily regulated than we already are”, suggesting the ‘bad advice’ argument was void for much of the industry.

ruby.hinchliffe@ft.com