Nothing has been done about low private medical insurance (PMI) policy renewal commissions from insurers incentivising bad adviser behaviour for 20 years, according to compliance consultant Branko Bjelobaba.
However, he warned that with fair value and Consumer Duty rules now in place this subject would need to be addressed by both insurers and advisers.
Bjelobaba (pictured) told Health & Protection he could not understand why commissions for policies up for renewal after 12 months tended to be much lower than those paid out to advisers by insurers for generating new business.
“That encourages in itself bad behaviour and is instigated by insurers,” Bjelobaba explained. “They have done nothing about that for 20 years.”
Bjelobaba warned that under fair value requirements and the Consumer Duty, the sector needed to question whether customers were getting the same amount of value for the amount they were paying.
They should also ask if intermediaries were being paid a commensurate amount for the services they actually provided rather than an arbitrary amount of money for putting that business on, he added.
“At renewal, is the commission paying for their services or will they be encouraged to move the business to generate more money for themselves and not to benefit the client?” Bjelobaba continued.
“Sometimes shopping around at renewal isn’t the right advice for clients.
“Some insurers I feel pay far too much commission for the activity that is being provided by the intermediary and I’m afraid there is a lot of greed among certain intermediaries who are just hell bent on getting as much money as they can for doing as little work as they can.”
Unwarranted switching concerns
The subject of the structuring of commission payments to advisers was acknowledged by Bupa Insurance UK CEO Chris Carroll in an exclusive interview with Health & Protection last month.
Carroll told Health & Protection he understood the sensitivity of the subject but was open to considering “anything that improves the sector”.
He also said he recognised it would be a big shift to use a flatter structure but that he believed the issue was formed of two different topics – whether the end state made sense, and the challenge of the transition.
The subject has been a high profile one of late with concerns raised among some intermediaries and insurers through Health & Protection’s Individual PMI Report that the current alignment of commission could be encouraging unwarranted switching.
