RA Commission Calculation

Hillyard has been in the industry for 22 years, is a member of LUASA and the FPI, a tied agent, with an IFA contract, which means that he is not restricted only to his company's products. Below are his thoughts.

"If the commissions debate is not correctly handled, it could spell the demise of the assurance industry as we know it. "It will have catastrophic results to: the public, in terms of service and insufficient cover/retirement provision; the fiscus, in terms of reduced tax inflows from the assurance industry; assurance company shareholders, who would see their share prices drop; the JSE (assurers have huge holdings on behalf of the public); the intermediary force, in terms of loss of employment/income; and ultimately the country as a whole.

"As far as I know, nobody has made public any calculations that quantify just how intermediaries are going to be affected in terms of cash-flow reduction.

"I have done the exercise based on a 50/50 mix of ordinary life business and RA business.

"The result, as computed by me, indicates about a 22% cumulative income reduction for five years reducing thereafter to the breakeven at about 17 years - and this assuming the servicing commission remains intact throughout (everybody knows that there will be leakage here)."

Click hereto view the Proposed New Commision Structure Table
Click hereto view the Proposed New Commision Structure with 5% Inflation for present money values Table

"Effectively we are talking about a substantial reduction in income which could, I imagine, result in many, if not the majority of intermediaries, leaving the industry.

"There is so much I could say but the bottom line is that it is vital that the intermediary corps speaks with one voice in this matter. If we are able to organize an Imbizo it is vital that initially only the intermediary bodies and the intermediaries attend.

"We have to discuss the situation holistically amongst ourselves first – to get consensus on the various issues, before we enter into discussions with the LOA, who after all, is really just the mouthpiece of the assurance companies.

"I am convinced that we cannot allow a meeting of this importance to be sidetracked by parties who have no idea whatsoever about the complexities, stresses and strains of running an assurance practice today and more importantly, don't appreciate the consequences if the current LOA proposals are implemented.

"What really frightens me is that I am under the distinct impression that intermediaries and intermediary bodies had no meaningful input in the LOA proposals. It seems to me that the bodies were called in, in reality, only to be told what the proposals were and had little, if any, meaningful input.

"This seems to have been borne out by [the FAnews] survey. For my part, I am not necessarily against changes to the current remuneration dispensation - phasing it in over say 5 years will soften the income reduction and give intermediaries the chance to adapt.

"It is common knowledge that the greater proportion of the problem of early policy termination/paid up values, lies with the assurers (about 66%).

"I have heard nothing concrete about what they are going to do on their part to help the situation.

"Do you think it is likely that top brass in the assurance companies will voluntarily take a 22% pay cut?

"In fact, to be an intermediary has always had an element of risk, but the long-term rewards of providing sound advice and service made it worthwhile. If the reward element is reduced how can this encourage the intermediary to provide 'better' service when he is forced to write volume business to survive, or even to get new entrants into the industry?

"Getting back to the 'poor' values debate that has enjoyed so much coverage in the press lately: simply put, if the assurers had a simple solution to the problem, would all this hoo-hah have arisen in the first place?

"The assurance call centres are seemingly manned by people who have not had to interact with the public face-to-face and thus it is often frustrating to have to rely on them for meaningful answers.

"I believe people want to feel that they are important and they want a person whom they can trust and can rely on - sadly, in my opinion, they don't get this from a call centre person when they eventually get through.

"I will add that I am not far off retirement, so the LOA proposals, if implemented, will have much less impact on me than those intermediaries who were planning on servicing the public for many years to come.

"I think that if the LOA proposals become law, assurers will have great difficulty in attracting people to work in the industry - how will this improve service to the public in terms of:

i. protecting widows and orphans ii giving disablees dignity and iii providing security for retirees?"