Critical Illness, much cheaper DIY? New confused Lily here!

LilyJ89

Hello everyone,

I am considering studying towards qualifying as an insurance broker to join one of my friends in the industry but I am a complete newbie. She works for an independent company and I would take on an admin position first but the plan is to become an independent protection adviser in the long term

I had a play around on one of her research systems today to check prices for £100,000 life insurance cover through an adviser and also £100,000 life with critical illness through an adviser. If commission was completely sacrificed, the price for the life cover was exactly the same (actually a few pence lower) than if I keyed in the same details on a discount broker website that moneysavingexpert recommends (moneyworld). However for the £100,000 life with critical illness cover, even with commission fully sacrificed, the premiums were around 30% higher through an adviser.

Can anyone let me know why this is? I would be happy to charge fees to clients for my advice if I become an adviser given that it would help them pick the correct cover. I know my friend has her clients' best interests at heart and points out a lot of advantageous things they would never have considered without taking advice. But it sits a little uncomfortably to think that on top of the fee a client would pay directly to me, they would also have to pay a much higher fee to the insurance company because they are not going through a DIY site!

Can anyone let me know why this is and also why it's specifically related to Critical Illness!? Maybe I'm having a blonde moment but for me it would seem fair for the insurance company to charge the same whether it's through an adviser or a discount website. In fact I thought it would be less hassle for them to deal through an adviser rather than direct to a client!

I'd really appreciate some help, I'm getting a bit stressed over this because I had my heart set on trying to be an adviser . Thanks. Lily.

dunstonh

Can anyone let me know why this is?

Different distribution channels obtain different deals. The level of commission is one that often varies. So, a firm that has negotiated a higher commission who then waives that commission, will have more to reduce the premium.

Tied agents and non-IFAs often have higher premiums to factor in their distribution costs (i have seen premiums near double with some tied firms compared to IFA pricing). Also, some distributions have cut down versions of the full product to lower their premiums.

Other things to look at is to make sure you compared like for like. ie. not guaranteed vs reviewable (makes a difference on CI more than life assurance) and that you have included all options and not compared budget versions. I generally find that we are are cheaper than comparison sites on nil commission.

LilyJ89

Hi dunstonh, thanks so much for your response! I worked a way around it where rather than putting "nil" commission I did 99% initial commission sacrifice and then the prices were almost in line with the cheapest of websites, only 106% of the Moneyworld quotes so pretty competitive, plus the adviser would be getting ongoing commission. Unfortunately if I did Nil initial commission it cut out a few of the providers that had the most competitive Life&CIC deals on MoneyWorld for example Royal London.

When sticking to the prices offered through my IFA friend - taking 100% commission as opposed to a fee, the prices are a lot higher, a 50% increase in premiums if taking the commission route. For that reason, do you always think a fee is the best way to go for a client? Helen talks about a reluctance for clients to go with the fee route sometimes but it feels like a no brainer for me, I might be missing something....

LilyJ89

Also, on Iress (The Exchange), if commission is charged rather than a fee for level term pure life insurance the premium increase is around 25%. But for Life with CIC it is around a 50% increase!? I'm still confused about why there is a much bigger cost to the client when it is a joint Life&CIC policy and a 50% extra premium for going through an adviser rather than paying a £25 fee for example on a discount site seems a rather large gap! I haven't asked Helen too much about all this because she gets a bit defensive talking about fees but if you could enlighten me somewhat it would be much appreciated!

dunstonh

Helen talks about a reluctance for clients to go with the fee route sometimes but it feels like a no brainer for me, I might be missing something....

Its habit. Many consumers are not used to paying fees.

I go by fee and set the commission to the fee. However, it requires educating the client who has not done it that way before. It would be easier just to go with commission basis with some people.

Also, on Iress (The Exchange), if commission is charged rather than a fee for level term pure life insurance the premium increase is around 25%. But for Life with CIC it is around a 50% increase!?

Shouldnt be as much as that. I would check inputs (maybe accelerated cover on one but not the other)?

Whenever we have run comparisons with comparison sites we have come out similar (sometimes a small amount above or below). Does she belong to any panels? This often improve the pricing and/or the commission. The more you restrict the better the terms but you can get decent whole of market panels with improved terms over the standard.

LilyJ89

Hi again dunstonh,

I know it is definitely accelerated cover on both, I simply untick the box for 1% commission, put it up to 100% and the premium becomes 50% extra. I'm not sure she belongs to any panels, could this be the problem? I assumed that if she was independent it would be a better price for the end consumer but I think you mean that it could be a better price if she picked from a restricted panel. I thought you had mentioned that tied/multi-tied can cause higher premiums. As you say, even if it was whole of market, I wouldn't have expected a 50% rise!

I know this is a rather generic question but what % extra would you generally think is reasonable for a client to pay if they come through an IFA rather than go on a cheap site to do it direct i.e. Moneyworld or Cavendish? I want to give good value for money if I'm going in to the industry! Also do you tend to stick to fees or does it not make much/any cost difference over the course of the policy for the client on your research systems?

I really appreciate your help, I hope you're happy to reply but I understand if I am asking too many questions! It's all a bit overwhelming for me.

LilyJ89

I apologize dunstonh, I notice you did answer about the fees. Does it cost the client less if you do it the fee way then? And what do you mean by "I go by fee and set the commission to the fee"? Thanks very much.

dunstonh

LilyJ89 wrote: »

I apologize dunstonh, I notice you did answer about the fees. Does it cost the client less if you do it the fee way then? And what do you mean by "I go by fee and set the commission to the fee"? Thanks very much.

Lets say the commission was £1000 and the fee was £500. You would collect only £500 of the commission to match the fee and the rest would be used to lower the premiums. This works on medium to larger premiums very nicely. For smaller premiums, commission may still be a better option for the client.

I'm not sure she belongs to any panels, could this be the problem? I assumed that if she was independent it would be a better price for the end consumer but I think you mean that it could be a better price if she picked from a restricted panel. I thought you had mentioned that tied/multi-tied can cause higher premiums. As you say, even if it was whole of market, I wouldn't have expected a 50% rise!

Multi-tie and tie tend to be more expensive as their distribution channels are more expensive. IFAs tend to be cheaper as a distribution channel (even cheaper than DIY apparently as DIY tends to suffer a greater amount of rework due to non-disclosure).

IFAs can negotiate terms based on economies of scale. So, a small IFA wont have much clout with an insurer. But if you belong to a club of IFAs then the insurers will take the buying power of that club. You can still be a member of a whole of market club and be an IFA. Strictly speaking you can also be restricted on protection and still be an IFA. The more you restrict on protection, the better the terms are. Although we have chosen to be on a whole of market club with no restrictions. Mainly as we do a fair bit of protection with friendly societies and they tend not to be on the panels (or comparison sites for that matter).

Most support service companies for IFAs have panel options available. Does she use any like Simply Biz or Bankhall?

LilyJ89

I'm with you now dunstonh. I find that if taking off commission completely (or as much as possible) and doing a separate fee direct from the client makes it cheaper than the commission route in terms of overall premiums over the course of the policy. Maybe clients wouldn't be happy to pay what could be a big fee up front though? It just seems that whatever commission is paid to an adviser by the insurance firm, the insurance firm also adds a chunk themselves to the premium so the excess cost starts to add up (for example £800 commission from the provider means they will add an extra £2000 to the total premiums) Maybe they have to do this as it is £800 lost to the insurance firm which they could have invested over the term of the policy etc.

I asked and she does indeed - uses the Simply Biz panel and I get where you're coming from on the economies of scale point now, thank you. Also I checked her prices (with full commission) and they were either slightly more expensive or slightly cheaper than comparison sites as you outlined further above. The thing is comparison sites and Helen's Iress quotes with commission are still around 120-150% of the cost of discount broker sites like MoneyWorld when I have compared like for like policies; the 150% is generally with relation to 100K Life & CIC policies whereas the 100K Life only is more like 120-125% of the price. So I guess the main question on my mind is wondering if getting independent advice is worth it to a client despite those extra costs? I see you're an IFA yourself and you come across as very knowledgeable so I'm sure you can give me some good insight. 25% or so extra seems pretty reasonable to be honest but 50% sounds rather a lot. This is at levels where the commission is under £600 too so there wouldn't be much wiggle room in terms of waiving commission.

Thank you so much for your responses, you are clearly a big asset to these forum pages!

Lily x

kingstreet

Are the discount firms giving advice and accepting liability for it, or is it execution-only?

Will the discount firms advise and assist with trust form completion?

There's going to be a cost difference between unadvised execution-only and full-service advice where the intermediary accepts the liability for any future advice complaint.

Some consumers prefer to meet that cost through commission and the consequently higher payments that will generate, in preference to paying a fee based on the work involved with the case.

LilyJ89

Hi Kingstreet. I totally agree there will be a price difference. Those sites usually offer phone services on how to fill in a trust and the basics of what it does for no fee but not an in-depth advice service of course. It just seems to me that if someone pays by commission the client pays a much larger premium despite the fact that difference in cost doesn't go to the adviser, it is eaten up by the insurance company!? Frustrating.