List the 4 different sales channel through which insurance products can be sold? (4)
- Brokers
- Company agents
- Direct response marketing
- Bancassurance
Describe the broker’s sales channel? (2)
- Independent brokers are self-employed brokers who do not represent any one particular office, and will have sales contracts with a number of insurers
o Commission is paid directly to the broker’ - Corporate brokers are companies that have been established as brokerages and are often owned by a bank.
o Favours specific insurers where the insurer and the bank have cross shareholdings
o Insurer pays commission to the brokerage, which in turn remunerates its sales staff
Describe company agents sales channel? (3)
- Commissioned agents are employed by a life office and mostly are only permitted to sell products of that office for commission
o General agents are commission agents who are allowed to sell products of a limited number of specified other insurers in terms of agreements between the insurers
- Salaried agents do not sell on commission but on fixed salary with performance bonuses (e.g. in worksite marketing)
Describe direct response marketing sales channel? (4)
- Media advertisements
- Direct mail
- Telesales – can allow for sales process to be completed immediately
- Internet sales – becoming increasingly popular
Describe Bancassurance sales channel? (2)
- Selling of banking and insurance products through the same channel (usually to bank customers)
- E.g. banks insist on life insurance for mortgage borrowers, personal loan holders, credit card holders
o Borrowers are not obliged to buy insurance from the lender – but many do so as it is an easy option
Describe the challenges associated with multiple sales channels? (2)
- Conflict between channels
o Independent brokers need assurance that their client information will not be given to company sales staff, especially if the broker no longer supports the company
o Direct response canvassing may compete with brokers or agents when aimed at the same target market - Experience differs challenges for underwriting and pricing
o E.g. if brokers’ business has better experience they can place the business elsewhere
o provide different prices for different channels
o OR provide brokers and their clients with additional services that will justify the higher price
Describe the general regulation and principles underlying commission payments? (5)
- Commission paid to brokers and company agents are regulated under the Long-term Insurance Act
- Principle of “equivalence of reward”:
o total sales cost must be materially in accordance with the maximum commission regulation - Companies often pay lower commission to agents, but then pay production and persistency bonuses not directly related to sale of the specific product BUT principle of equivalence of reward must be adhered to
- Fee-based structures where clients pay a professional fee for the adviser’s time is becoming more common
- Commission is specific to the insurance industry. Unit trust and linked investment service providers (LISP) have “advice fees” which are not regulated
Describe the three different methods of paying commission? (7)
Upfront commission:
* Commission is paid in full over the first number of years of the contract, based on the full contract term
* Calculated using premium and term of policy
* Single or recurring premium policies
As-and-when commission:
* Commission is a percentage of every regular (monthly) premium and is payable when the premium is received, with payments continuing throughout the full policy term
* Recurring premium policies only
Trail commission:
* Commission is a percentage of FUND VALUE with payments continuing throughout the full policy term
* Aggregated trail commission paid may not exceed the maximum aggregated as-and-when commission that can be paid (regulation)
* Single or recurring premium policies
What is a broker required to be registered
FAIS
ASISA TCF Best Practice wrt commission and fees
ASISA requires its members to follow TCF principles with regard to commission and fees
