News Article : Smoke screen
|Category:|| Advisers & Brokers : Commission & Fees|
|Posted:||06 Sep 2005|
Ludicrous proposals, says IBC
The Insurance Brokers’ Council (IBC) says it rejects proposals for changes to life office commission structures, put up for discussion by the industry in June.
The IBC, which represents some 4 000 independent brokers, does not believe they “holistically address the policy cost issues that face the consumer.”
IBC president, Johann van Rensburg, points out that, “Broker commissions account for only 34% of the total costs on policies.”
The balance of 66% is imposed by the life offices as follows:
- 29% – insurers’ distribution costs (not including broker commission);
- 25% - maintenance and investment charges;
- 9% for profits; and,
- 3% for tax.
“To insinuate that broker commissions are the exclusive cause of poor value in insurance policies is simply ludicrous,” he fumes.
“Our view is that the LOA has consistently used broker commission as a smoke screen to divert attention away from their own costs and to protect the interests of its members.
“Consequently the LOA proposals focus only on the change in commissions from an upfront model to an as-and-when model. But no mention is made of the very necessary amendment to life office costs and charges. The IBC thus sees the initiative as narrow in that it only affects brokers.”
He adds that the LOA proposals, if adopted by National Treasury for implementation, will without doubt severely impact the entire industry. “And we are convinced that several hundred small brokerages will be forced to close.” The IBC notes the recent move by Momentum to acquire Sage, and says this proves the point there will be fewer brokers. Sage had a 500-strong agency force.
What he terms ‘downstream consequences’, will include:
- Huge job losses. The average IBC broker employs four staff, so as many as 30 000 people could be dumped into the economy, according to the IBC;
- A tremendous impact on consumers with fewer brokers actively educating them and encouraging them to make provision for retirement; and,
- A serious blow to the already poor savings culture in South Africa.
Mr Van Rensburg says this is not in the best interests of the consumer. Although life offices and banks will assert their clients’ interests are always paramount, bank brokers are often subject to mandates requiring them to place 80% or more of their business with their principals. Tied agents are placed under similar pressure.
Independent brokers, on the other hand, are a consumers’ only source of truly independent financial advice. The IBC believes the proposed commission changes will thwart this by reducing their numbers.
However, the council says it supports any change that would be fair and benefit all stakeholders: brokers, assurers and their clients. For this to happen there needs to be open dialogue and participation on the part of all stakeholders.
“We want to see the maintenance of a sustainable industry,” says Mr van Rensburg. “Surely, if we are to find a solution we must accept that it would be unreasonable for brokers to make all the sacrifices.” Life offices must also make concessions by, for example, reducing their charges to the consumer.
To this end, the IBC is engaging on extensive research, both locally and internationally, to prepare a submission to government. It hopes this will serve to place decision makers in a ‘far more informed position’.
“In the interim, we reject the LOA proposals and strongly question whether indeed they are a step in the right direction.”