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Truth, lies and the past

31 July 2006 Angelo Coppola

Mike Jackson - Chairman of the LOA -speaking at the fpi convention last week came in for some serious stick, as he defended his constituency - the life offices.

He also defended the discussion paper response that the LOA provided to the National Treasury, saying that in fact if their proposal had been adopted several years ago brokers would be better off today and be in a position to sell their practices based on strong annuity income flows.

But as one delegate put it, what happens in the interim?

Jackson went on to say that historically the life offices entered a market sector that they should have stayed out of - the short term industry, a space that belongs to the banks and unit trust companies.

The life industry entered the short term space, with the wrong business model.

The cost structures and all the processes were designed for the long term. All costs and charges assumed that the contract would be a long term one. At the other end of the business model were the shareholders, who invest in these products and expect a return.

Subsequently in the last 10 years, consumers have changed their eating habits and taken a short term view on their investments -a significant problem. There has to be a long term view, but unfortunately there are more products and choice and an inappropriate business model.

Historically, on average the term on a life product was 15 years in the 1970s, today the average term of an RA is seven years.

Turning back to the current issues Jackson says that the discussions are ongoing with the National Treasury, while the cost structures and profits to the shareholders are lower - and 50% less in some instances.

He says that his constituents are taking a hit - they have cut their profit margins and come to the party.

He cautioned however that the life companies can't cut costs too much - because there needs to be service and advice. They (life offices) are conscious of the future of the advisor market. Commissions can't be cut dramatically, as most of their businesses have been based on the upfront commission structure.

In terms of the R3bn admission of guilt fine - who is going to carry the brunt of the figure? Jackson says that the R3bn will be funded by the life companies, and their shareholders. That takes care of the past.

The discussions are still ongoing with National Treasury, and for the future safety net figure, and a number of between 60%/70% was agreed to, going forward, while National Treasury was always looking for a higher number. Jackson says that this is a sustainable safety net on an early termination basis.

Going forward the brunt of the safety net will be borne by the shareholders and policyholders.

Talking about commission and the missing 15% as reported in the LOA numbers, Jackson says that the overhead of managing sales forces, marketing, distribution and advertising are just some of the elements. Distribution costs are also there. It appears that the costs are averaged out over all the policies.

Editor's thoughts:
* Jackson came in for some serious flack, on behalf of the LOA, and judging from the audience response, it appears that there are several unresolved issues with brokers and planners unconvinced that the life offices have their best interests at heart.
* And while he looked uncomfortable I take my hat off to him for being at the convention in the first place.
* It was also good to see the planners making use of the opportunity to put their point across.
* What was also brought home was the need for more face to face sessions where the LOA meets with brokers. There is a need for such a forum.
* There were other speakers on the panel, and we will report on them separately next week.

Quick Polls

QUESTION

We have watched with interest as each of the country’s large life insurers report their 2021 life claims statistics, with soaring claims and claims values. That got us thinking: how do the big life insurers compare against one another, from an IFA perspective?

ANSWER

An insurer is an insurer is an insurer
All are excellent: would not deal with them otherwise
There is one insurance brand that stands out for me
Tied agent: but my brand is the best out there
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