If commission was abolished for protection plans, what would be the result? Would the customer benefit? Perhaps not, finds Alan Lakey.
Consumers are unlikely to purchase knowingly a below average CI product if a more comprehensive version is available at a broadly similar price. Therefore, logic suggests that these particular consumers were approached under favourable circumstances and asked to buy the product.
These purchases would not be based around the analysis of competing plans, but simply because the consumers were approached and made aware of a need or some other tactic.
If commission was removed from protection plans, how easy would it be to instigate a meaningful conversation that results in a beneficial purchase?
What benefits would typical consumers receive if commission was abolished? The answer appears to be none. Looking at figures provided by a leading insurer, it can be seen that the saving obtained cannot compare with even a modest fee (see Table 2 below).
These figures show that the premium is discounted by just more than 20% if no commission is taken.
It is clear to anybody with even a semblance of understanding that advice is essential when looking at critical illness insurance (and income protection) and that far more analysis is required than when dealing with a basic life assurance. How much would such analysis and advice cost? Three, four, five hours at, perhaps, £150 per hour?
Presented with such a scenario, what would a typical consumer choose? A fee of maybe £600, or a premium increase of £10 to £20 per month?
Sure, there is an argument that for larger premiums – particularly in the business insurance field – a fee may be preferable. However, for the typical consumer who not only needs galvanising into action but usually pays modest premiums, the abolition of commission would result in even greater levels of under-insurance than currently witnessed.
Alan Lakey is director of CIExpert Ltd
