“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.
“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.