| Insurance “Implementation fee” |
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| Written by Wilfred Ling | ||||||
| Monday, 08 December 2008 | ||||||
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I found that an FA company charges an implementation fee for clients who buy insurance policies from them. They charge $100 in implementation fee per policy for standard life and $150 in implementation fee per policy for sub-standard life. This fee is not advisory fee which has its own charging structure. I find this interesting and I think it is constructive as well. The implementation of the client getting an insurance contract varies from policy to policy. For instance, most advisers will be scared of implementing a disability income insurance due to its very strict underwriting and good chance of loading or decline altogether. Another scary insurance product to implement will be term insurance. If a client is a family man there will be a good chance that the sum assured will be huge (relative to the premium). Some family sole bread winner likes to buy huge term insurance because of occurrence of medical problems. Knowing that any loading on whole life insurance is going to be very expensive, they don't mind having some loading on term insurance. Due to anti-selection, they will go for as large sum assured as possible because budget is no more an issue. Needless to say, these “sub-standard” cases earns negative commissions for the adviser. After netting off cost, transport, time and scolding from customers (sub-standard cases will never make a customer happy when premiums are higher and exclusions imposed), the adviser is actually subsidizing the client. The service standard of the insurer also plays a part. Some insurers' administrative efficiency is non-existence (lost of GIRO forms, did not receive medical report, correspond directly with client without informing the adviser, advising the client directly (in breach of regulation) without keeping the adviser in the loop, deducting premium twice at the same time, backdating the proposal to many months with no good reason, etc). This increases cost and time and frustrations for most party. One insurer even do direct telemarketing to the client, advising and hard selling products and thus bypassing the adviser altogether. Thank goodness this seems to have stop after a change in management. Thus, having an implementation fee like this FA firm does seem to be a positive move. But the question is will client want to pay?
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