ROUNDTABLE: The real risk in FoFA

DE GORI: If you don’t have a commission structure to support that process, the planners then have a commercial risk, which I think the guys here can speak to more than I, about the fact that if a proposal doesn’t get through, who pays you for that whole process? You still have to go through the application processing, seeing the client, dealing with the underwriters, getting medical applications done, et cetera.

So there’s a real risk there, I think, and so therefore we see a lot more negatives than positives in removing commissions ‑ and to be quite fair, we don’t know what the actual benefit is of removing commission, what they’re actually trying to achieve.

SATILL: I think the conflict that they’re trying to get rid of is the differing commissions. So there is conflict if you’re seen to be selecting the highest-growth commission going around. That’s easily fixed.

But just if I may digress slightly and address Dante’s comments, because I’m not on the manufacturing side, but I think that if you say that there’s not much evidence of churning, I don’t think we’re in the same industry, because that is a big problem in our industry. We see it from the outside looking in, as an adviser. Often we see horrific stories, where advisers are churning and what’s happened is that there might have been some medical condition happen between two events, and clients don’t get paid. So it’s an horrific problem and it’s something that the manufacturers can fix very easily. That’s my opinion on that.

I’m originally from South Africa, which has always been a leader, if not the leader, in the world of life insurance. And about 22 years ago when I left the country it already had standardised commissions for many, many years and it worked perfectly and probably continues to work.

BROGDEN: Are they industry regulated or government regulated?

SATILL: Not sure, but it was regulated. From memory, I think it was about two and a half or three per cent of the premium times the term. Simple as that. No matter where you placed the business, so the only difference in the dollars was the fact that if, obviously (company A’s premium was higher you were going to earn more. But I mean, you know, I don’t think anybody’s going to sell the highest premium in order to earn the most. But the rate of commission was standardised, absolutely standardised. There was little, if any, churning. And that’s a simple solution.

“If we turn off the tapes and just ask the question, “Who are the culprits?”, with a few other people in the room it wouldn’t be too hard to figure who they are, and you can then take action if you want”

HOYLE: Is it simple?

SATILL: Absolutely.

HOYLE: Who’s going to say what the level should be?

SATILL: Well, it doesn’t matter. As long as the level is reasonable and sufficient for us to continue to run our businesses. You know, today every insurance company offers, to my knowledge, generally three rates of commission. They offer an upfront, they offer a level and they offer a hybrid. Some of them offer more than one hybrid.

We write 98 per cent of our business in our practice on a hybrid basis, only because the level is not high enough for us to sort of make a living. But the reason that we write it on hybrids is because of the fact that we don’t churn; we just do not churn. The ongoing commission on a hybrid is higher than that on an upfront, and we are building a business, I hope, that the government doesn’t take away, and that’s a business based on an ongoing income stream. We need that income stream in order to provide our clients with an ongoing service and a high quality service.

I personally think that those businesses that are continuing to write the majority of their business on an upfront basis either have very high standards of living and therefore need the money for some reason, or churn it. And I don’t believe that you’re right, by the way, that the insurance companies are doing anything about those churners. I don’t think that they’re not doing business with them. I think that they still are courting them.

BROWNE: I know for a fact that Comminsure have taken action against churners. However, I think the issue which has been raised here is the standardisation of commissions, which has been raised by a number of people. The challenge there is that if we were to look at standardising, we need to be very careful that it’s not perceived by consumer groups and by regulators as price collusion.

SATILL: But it’s not. The price is different; it’s just the commission.

BROWNE: I understand that. I’ve made it very clear that it’s perception. I see that there is an opportunity to work with industry groups in collaboration with regulators or the ACCC to have this conversation at some point in time. However, for us to look at doing it autonomously, without a collaborative effort with government and consumer groups, we just need to be cautious.

KLIPIN: What’s quite clear is that there are two or three issues when people look around the insurance market. One is that some of the big writers will move some of their book, they might move all the book, they might move some big cases, and that’s the churning issue. And there’s a very strong regulatory reason why you may want to do that, and you know with all the innovation we’ve had in the market place in the last five years, there are better products and services out now than there were five years ago. So why wouldn’t you want to help people benefit from that?

The other issue is how do you get the manufacturers cooperating so that you can have your “hit list”, because if we turn off the tapes and just ask the question, “Who are the culprits?”, with a few other people in the room it wouldn’t be too hard to figure who they are, and you can then take action if you want.