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Partners Life chief executive Naomi Ballantyne answers questions on her company’s broker off-shore incentives schemes and why Independent Financial Advisers (IFA) are incentivised this way.
How can you justify these trips when you put up insurance premiums every year?
The driving factor in the rise of premiums over time is the rising age of the customer. Increases in premiums are therefore unrelated to cost of distribution but are a factor of product structure.
Yearly renewable term (YRT) products are structured so that a customer is re-priced yearly based on their actual statistic risk profile as of that policy anniversary.
Insurance premiums are calculated based on actuarial risk profile – as a customer ages, their risk profile generally increases; however, there are product types and age ranges where actuarial risk, and subsequently insurance premiums, come down following a policy anniversary.
In addition, there are many levelled-premium options available under most product types, which allow for premiums to stay relatively stagnant over time.
It’s important to understand that, under the Human Rights Act 1993, life insurers are only allowed to price based on age and gender, on the basis that differing risk profiles for these ages and genders are supported by a substantial volume of statistical data. Underlying premium rates cannot be adjusted without statistical justification.
Tell us about these private incentives you run – that you pay to send brokers on that don’t come to your official trips. How many do you do, what’s the financial value?
The specific terms of commercial agreements between Partners Life and individuals, or other organisations, are confidential.
These agreements are formed with the long-term benefit of consumers, Independent Financial Advisers (IFAs) and product providers in mind, because in order to survive and succeed, the industry must meet the interests of all three groups.
Couldn’t the money you spend on incentives be spent more wisely, such as on reducing premiums and increasing financial literacy? You say customers need to understand the value of insurance, why not invest in that?
Partners Life strongly supports the idea that IFAs are the most effective channel for raising financial literacy, educating customers about the nuances of insurance products and advocating for their customers, by initially providing expert analysis and advice regarding an individual’s financial risks and needs, and later at claim time when there can be a knowledge imbalance between customer and product provider.
The costs of distribution across the industry are relatively static regardless of distribution channel, and no individual provider’s incentives or remuneration structure affects total premiums in any meaningful way (and as noted above, statistical justification is needed in order to shift underlying premium levels).
Brokers are already very well incentivised via commission, and Partners Life pays in the higher end on this – why do you need to fly 100s of brokers around the world?
Partners Life’s view (based on the dozens of years of collective experience in the insurance industry of our directors and executive) is that the IFA channel is more effective than any other at both educating and providing expert advice regarding product to customers.
Therefore, offshore conferences are a rare opportunity for us as a provider to strengthen relationships, educate and support the IFA network.
It’s not clear what you mean by “private incentives”, but Partners Life does not host events, conferences or any other activity on any private basis. Rather, offshore conferences have qualifying criteria, which in some cases includes tiers.
Partners Life claims the commissions they pay brokers are not in ‘the higher end of the market’.
This doesn’t seem customer-centric. How much is the total you spend on offshore incentives?
Under the current iteration of the Financial Advisers Act 2008, Authorised Financial Advisers (AFAs) are required to disclose detailed remuneration arrangements with the providers they hold agencies with.
Registered Financial Advisers (RFAs) and those operating under a Qualifying Financial Entity (QFE) license are not required to disclose these remuneration arrangements.
However, Partners Life supports transparency in the industry and encourages brokers and consumers to have wide-ranging discussions about product benefits, product providers and adviser remuneration. Consumers should feel free to request information from advisers, whether independent or tied, about their relationships with providers.
In terms of spending, providers keep this information confidential for competitive and commercial reasons.
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