Hat tip to Russell Hutchinson for this story in the UK Observer newspaper. It looks at some of the ways the UK Financial Services Authority is looking to try and restore consumer trust in the insurance and financial products industry.

A ban on commissions and an end to independent financial advisers are two of the more “out there” ideas that could be on the table.

Whilst we doubt this will ever happen, its an interesting debate and – as advocates and pioneers of online life insurance direct to the consumer, with no trail commission to middlemen – its one we’ll certainly keep an eye on.

Related posts:
Consumers shouldn’t be kept in the dark about life insurance commissions – 25 June
We agree – no trail commissions! 24 May
Life insurance online and the middlemen 18 May
Life insurance online at last! 14 May

The Professional Advisors Association (PAA), trade body for Financial Advisors in NZ, argues that its members shouldn’t have to say how much commission they get when they sell an insurance companies’ policy to one of their clients.
This was part of the Association’s response to new rules governing the NZ financial sector, announced last week by the Ministry of Economic Development, which features such disclosure of remuneration.

On financial news site Good Returns, the head of the PAA is quoted as saying “…we are not convinced that the unique nature of life insurance compensation is fully understood by the ministry”.

On the contrary, I think the ministry understands perfectly.

I firmly believe that consumers have every right to know how much their financial advisor is paid by the insurance companies.

Why do I feel so strongly?

These commissions are built into the cost that the consumers pay for their life insurance – for the life of the policy.

Financial Advisors are paid out of the pocket of the insured, not the insurance company. If commissions were lower, then the price of life insurance would be lower for everyone.

I also question why the PAA don’t want to disclose commissions. Could it be that commissions in NZ are embarrassingly high? Commissions paid to Financial Advisors in New Zealand are amongst the highest in the world.

What do you think?

Related posts:
We agree – no trail commissions! 24 May
Life insurance online and the middlemen 18 May

Update 28/6/07

Had a few queries since the Herald online featured my post today asking why, as an insurer, I’d criticise the whole commissions process. Regular readers will know that, unlike the traditional insurers, Pinnacle Life offers life insurance online and direct to the consumer.

Where financial advisers do promote Pinnacle Life products to clients, resulting in a policy being bought, Pinnacle Life offers a one-off referral fee to the referring adviser.
But Pinnacle Life’s fees are less than half the commission levels paid by the traditional insurers.
Let me state that Pinnacle Life is not ‘against’ insurance advisers. In fact, we have a good relationship with several that refer business to us. But many insurance advisers won’t promote Pinnacle Life’s products and it’s hard not to go past commission levels as a key reason for this. As a result, consumers are missing out on products that are the best price available in the market.
Hence, we believe that commission disclosure will provide better transparancy, and this will be good for consumers ultimately.

In the NZ Sunday Star Times this week Rob Stock had a look at how “risky” hobbies and occupations impact life insurance premiums.

Some of the weightings – set by the global reinsurers and added to the premiums of people with jobs or pastimes perceived as “risky” – are pretty steep.

On the flip-side, for the majority of us who are not bomb disposal experts, stuntmen or racing drivers (preferring, as we do, the relative safety of our desks and the regular 9 to 5), the article actually emphasises how cheap life insurance is.

Consider this: a 35 year old male in good health can protect his family to the tune of $500,000 for less than $1 per day with Pinnacle Life. It’s not a pleasant thought but, should he die within the next month, his family would get half a million dollars and he would have paid out less than $30.

When you look at it like this, it’s not a question of can I afford to take out life cover, but how can I afford not to?

Check out what life insurance would cost you.

All those budding Michael Schumachers and Evil Knievels out there needn’t worry either – life insurance for employees in risky jobs is usually provided by their employers, so it doesn’t hit the pocket of the insured.

Pinnacle Life’s online life insurance was headlined “life insurance for the young and trendy” on the blog Mad Young Thing, in reference to our obvious appeal to the internet-savvy Generation C. 

But who exactly is Generation C?  And how do you know if you’re it??

There’s lots of commentary out there (just try a Google search) but apparently no consensus on what the “C” actually stands for – check out the Wikipedia entry and the associated C list.  Not sure about some of them!

The word “content” often comes out a winner – people who produce and share online content, post their photography on the Internet, and publish or comment on blogs. It follows that these will also be the people who are comfortable with and might prefer to buy consumer goods online.

With this in mind, I’d add the “now” generation as a further defining characteristic of Generation C.  OK I’ve cheated, it doesn’t begin with C, but it’s the generation that doesn’t want to have to wait around.  It’s more like “I see a product, I want it, I should be able to buy it immediately and online.”  

That’s what we’re about at Pinnacle Life – cutting out the complexities of insurance and giving consumers what they want at the click of a mouse… plenty of C’s there!

Be interested to know what others think.

Earlier this week we were part of a lively discussion on Rod Drury’s blog which, by the end, highlighted the gap between Pinnacle Life and the traditional life insurers.

In a nutshell, Pinnacle Life is the first and only life insurance company to be able to guide a consumer through an application process for life insurance and issue them a policy immediately on-line with no paper, no signatures, no post and no human involvement of any kind. A consumer can walk away with a life insurance policy then and there.

And there’s more.

Try reading the policy documents offered by traditional insurers. You don’t get one document. You get a minimum of a base policy and a schedule and some insurers manage to slip in even a third or fourth document for good measure. They’ll tell you something like “these three (or four) documents together make up your policy document”. And you find each document has cross-references to all the other documents. I’ve been in this industry a dozen years and still find it all confusing.

In comparison, Pinnacle Life issues the consumer one customised policy document that explains everything in plain English. No cross referencing, no legal terms, no insurance jargon. And best of all, the consumer gets to view a printable version of their customised policy document before they commit. No other insurer does this.

We think traditional insurers have designed their products and process for ‘the industry’ whereas Pinnacle Life has designed its products and process for the consumer.

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Life insurance may well be associated with those of us of a certain age but there’s a clear benefit to buying a policy when you are younger and healthier – it may be cheaper in the long run.

Premiums set by life insurance companies are based on your state of health at the time you take out the policy.  If you’re healthy, you get the lowest insurance premiums for the life of the policy.  If you wait until you have a health problem, your insurance premium may be increased and this increase will be maintained for the life of the policy.

So don’t wait until your health starts deteriorating – buy life insurance when you are young, fit and healthy and you’ll have lower premiums for life!

Good Returns – Tuesday, 22 May 2007  Pinnacle Life has launched a website which allows people to get immediate online cover with electronic underwriting. 

Pinnacle Life senior partner Ed Saul, said, “We’re giving consumers a quicker and easier way to buy life insurance.”  “The website gives consumers complete control over the buying process whilst eliminating the previously obligatory involvement of people and paper.”  

Instead of submitting an application form and waiting days for a policy to be approved and issued, we do it online and we do it immediately.”  “We believe our offering sits comfortably side by side with financial advisers,” Saul says.  

“Those consumers that feel they need advice can purchase through advisers and for those that feel comfortable dealing with their insurance needs themselves, we offer a direct alternative.”

See the full story on Good Returns…

The introduction of the NZ smokefree law in December 2004 prompted (or forced!) a number of people we know into giving up and a lot of them have stuck to it. But how many of those have thought to tell their life insurance provider?

In the UK, it’s reported that reformed smokers can halve their life insurance premiums – it’s the same in New Zealand. So giving up can help your health as well as your wallet. Worth checking out with your provider or getting a new quote! Visit the Pinnacle Life website and see how much you could save.