To disclose or not to disclose, that is the hotly debated question. Industry pundits are divided on the issue of spilling the beans on broker commission. The key to the argument is whether regulations should be brought in to make this legally-binding.
The ABI’s code of practice states that an intermediary should “disclose his commission on request.” And it seems the majority of intermediaries do offer the customer this option. But the ABI’s recommendation is open to abuse. There are plenty of firms who keep their percentage commission a secret.
As commission rates can vary from company to company and from week to week, the need for an open and honest approach to current figures is at the forefront of many people’s minds. And this does not only apply to the individual buyer. John Gillman, principal of the Watson Wyatt consultancy, says: “Commission payable in respect of healthcare business can be substantial and we believe that all companies should be aware of what their adviser earns.”
It is well known that initial commissions fluctuate much more than the renewal payments. The latter sticks at 5% across the board while the former can vary from 8% to 40%. Clearly, the difference in rates at inception is significant.
It is the opinion of intermediaries such as George Connelly, principal of Healthcare Matters, that the renewal percentage needs changing. He believes that a low renewal commission encourages the practice of needlessly switching insurers, purely to benefit from the higher initial payment.
“The only person making money from the switch is the person doing the switching,” he says.
Interchanging policies is something that insurers are also keen discourage. BUPA is reviewing ways to make the industry as ethical as possible. Sales director, Andrew Briscoe, says: “Some people are less ethical that others and will do whatever earns them money. Regulation will come to the industry if we don’t clean up our act. Whether we need it or not is a comment on ourselves.”
BUPA’s Health Select Network (HSN), launched last year, is an initiative aimed at improving the service which intermediaries provide. Termed as `back up’, it means that BUPA works closely with its intermediaries by giving them training and market support thereby having the best quality advice for the customers.
Of course, the 300 HSN members are entitled to a superior new business commission than their non-affiliated contemporaries–10% more.
“The HSN is growing at a fast pace. People are being advised in a responsible way. We want customers to be satisfied with the service they are getting. And I believe that intermediaries should disclose their commission,” Briscoe says.
A way round the contentious issue of commission percentages could be a widespread move to a fee-based advice service. This is becoming increasingly common at major corporate levels and Briscoe believes it to be a more professional way of doing business.
“The intermediary is there to give independent advice on which products come from whom. Taking commission is a transparent method; if a fee is paid it is irrelevant which product they recommend. There is no implication of bias,” he comments.
But not everyone agrees with him. In fact, another employee of BUPA is of a quite different opinion. Colin Webb, head of intermediaries sales, is sure that commission disclosure is not the problem people perceive it to be. He makes the point that many individuals prefer to pay over a period of time instead of a lump sum.
He states: “It makes the customer feel more assured of continued support. The intermediary’s image had moved up in the insurance market. Joe Public is prepared to pay for advice. And I don’t think brokers switch for money anymore. It is all for the client and a better deal.”
Richard Halley, Norwich Union Healthcare’s intermediary support manager emphasises that the client is in the driving seat. “Customers should be able to choose which way they want to reward the intermediary. The problems with fees for smaller brokers is that PMI might only be a small part of their business.”
The bottom line is that the client decides which way to reward the intermediary. And different clients have opposing views on the most cost efficient way to do business. Is there, then, a case for enforcing legalised guidelines across the board? Would it be fairer for everyone involved to have standardised regulations?
Once again, opinion is divided on this issue. Some argue that there is enough paperwork already and that a regulated industry would create unnecessary bureaucracy.
Paul Swanson, commercial director of intermediary, Healthwise, based in Dudley, West Midlands, has no problems with regulation. “There are cowboys in the industry and self-regulation is extremely difficult. We are all in favour of regulation to raise standards.”
But there does seem to be general feeling that something needs to be done. Maybe the best compromise is some kind of semi-regulation, primarily a form of self-discipline. Les Curson, general manager of private medical provider, Clinicare, has some ideas on how this can be achieved.
“The Association of Medical Expenses Insurers has been meeting for a few years. All the insurance companies have representatives there, as well as some of the re-insurers. We discuss PMI issues. AMEI is a body that should have its profile raised and then we could introduce self-policing,” he asserted.
There will always be problems inherent in a non-regulated body. After all, who would monitor a self-elected team? And there will always be resistance to an imposed set of legitimate regulations, not to mention the disagreements on commission percentages. The debate rages on.