Commission models in the protection industry are “ridiculous” and incentivise poor behaviours while reinsurers are beginning to consider distribution in pricing.
Industry experts also noted how tight margins were in the market which could be restricting coverage, with UK premiums found to be cheaper than many comparable nations.
Ian Sawyer, commercial director of Assured Futures, (pictured) told delegates at the Protection Review Conference the sector needed to increase prices in order to cover more people.
He added that when he looked at some of his sales back to the year 2004, many of the prices he picked up were 20% to 25% cheaper now than they were then.
This was echoed by calls from Cura Financial co-founder Alan Knowles to improve terminal illness benefit and charge more for it if necessary, with life insurance at present being “too cheap” and not focused on quality.
Sawyer also argued the commission model in the industry was “ridiculous”.
“It doesn’t facilitate good buying behaviours. In fact, it facilitates all of the wrong behaviours in my opinion,” he added.
Also touching on the subject of price and commission, Neil McCarthy, chairman of the Protection Distributors Group, told delegates that he did not think there was enough money in the sector.
“Profit is king,” McCarthy said.
“Profit is very important to distributors and there is not enough profit here. There is not enough money in this industry. I think we need to look at the way commission is paid and look at the way remuneration structures work.”
Insurers and reinsurers looking at commission
The tight margins were highlighted by Jason Hurley, global life consultant at Aon Reinsurance Solutions, who revealed UK were typically much cheaper than those from comparable nations such the US, France, Germany and Australia.
Hurley expanded on the breakdown of how premiums are charged and how once the broker’s commission and reinsurer have taken their cut of the premium, there is not much left for the insurer.
In addition, Hurley said that insurers also have contend with high industry costs such as investing in buildings, recruiting people, product development, marketing, IT, policy documentation, underwriting and doctor’s reports, meaning there “ain’t a lot of money around there”.
Discussing the idea of cutting commission for protection insurance or basing it on quality, Hurley added the subject is an area insurers and reinsurers are looking into.
“Clearly this is not going to go away,” Hurley said.
“Clearly there is going to be more focus on quality and professionalism and the reinsurers are getting more and more switched on as to who is actually distributing this and how that then reflects into the reinsurance price.”