LOA discussion paper and commissions

26 April 2006 Angelo Coppola

Dear editor

*  I would like to respond to this discussion paper.  First of all, I want to say that I am responding as an independent intermediary (black sheep) of the Industry.

What bothers me is the fact that all the parties involved, misses one very big relevant point.  All speak of short- and long term Insurance Contracts. 

What is a contract?  Certainly it is a mutual agreement between a Product Provider and a Customer to provide certain benefits in change for a premium. The contract between the parties has nothing to do with the intermediary and his name does not even appear on the contract.

The intermediary only sells the product from the Provider to the Client and have to stand up for his advice in any Court of Law... 

The whole debacle of commissions etc. that is thrown before the head of the Broker, should not really be an issue.  Let me explain:  the Broker does an analysis (as law prescribe) and sell a life product of example R1 000 000 life cover to the client. The Insurance Company accept the contract with the Client.  The Broker gets paid by the Insurance Company for a service rendered.  This is one of the biggest assets that any person will have in his life time.  In most cases, bigger than the house or car that he is going to buy in his life time.  Why should the Insurance Company and/or the Broker be penalized for the breaking of the contract by the Insured?
Why should there be so many in discretions between the Insurance Industry and the rest of all the product providers in South Africa?  Example:
- The Estate Agent sells the house to the customer and get paid up to 8,5% commission.  If the Client cannot honour the contract between himself and the Product Provider, the Product Provider take legal steps and enforce his rights as stipulated in the contract.

- The same applies to the Car Salesmen, the Banks, the Doctors, the Attorneys, Multi Choice etc, etc, etc.

- Why is it then that the same customer of all the above mentioned Industries, do not have the right to change their contractual obligations as they like, but the Insurance Industrys contracts are not worth the paper that it is written on?

- Let me explain what the impact of this whole debacle is going to have on my finances.  The past few years, I had to put up with the increased cost that was forced down to me from the Product Providers, FSB etc.  These costs include:
*  Printing and administration cost
*  FSB, Council of Medical Schemes compulsory licensing cost 
*  Additional admin people to help with the higher demands of the administration, compliance etc.
*  My admin cost tippled the last two years due to the above mentioned costs.

Now, the whole Industry want me to cut my earning with about 80% and still have the sword over my head of claw back commissions, should the client dishonour his contact.

The following example can be used.  The engine of my car has broken and I ask a Garage to fix it for me.  They ask me R5 000 for the job.  After I have agreed to this, they fixed my car.  When I receive the car,  I tell them that I will only give them R1 000 upfront and the other R1 000 over the next five years.  After the five years, and if I still want to service my car with them, I will pay them the next payment.  Ridiculous?  Yea, I thought so, but this example is just as applicable on me, the Broker.   

The biggest culprits in this whole discussion are the LOA.  The FSB sees the LOA as the main player in the Insurance Industry.  The comments and suggestions of the LOA are usually directed at the impact of commissions on all the products and in a very small way, the problems of the Companies themselves.  The LOA does not speak on behalf of the Broker!

The past 20 years or so, the Broker is still owning a commission of 3,25%.  There was no adjustment in the commissions to provide for all additional financial burdens that are dumped upon the Broker.  Now they want to decrease the income of the Broker(FSP) up to 80% and still think that the products will sell to the public.

I smell a rat some where.  It looks to me that there is a definite action against the Independent Broker.  The Broker has to comply with a host of legislation (from FAIS to FICA etc.) that regulates him.   The FSB has the odassidy  to exclude the Direct Service Providers like Out Surance, 1Life Direct,  from regulation by the FAIS act.  Let us be honest, what is the biggest thread to the Customer, the Broker that provide an analysis of the needs of a client, or a sales agent that does tele-sales?

Well I know that nobody will listen to me any way, but at least I have tried to bring some new perspective to the table.



*  I read another news report this am about the changes to commission structures etcyawn

As someone who is trying to run a fee-based practice I have no vested interest in the commission debate but what really gets me is the continued assertion by the LOA that 35% of the cost of a new policy is as a result of the commission costs.

What I have not been able to establish from any insurer is if this is the case, then why when I dont take any comm. on a policy do I only get a 15-20% reduction on the cost of the cover? Where is the missing 15-20%?

I have even had one company try to assure me that not taking any commission on a policy will not affect it at all as the costs are spread out over the term what a load of liesit is time for some truthThe LOA needs to be challenged about their figures

Perhaps you could do some enquiring? I would be happy to supply you with some quotes to substantiate the position, but even 1lifedirect only offer up to 22% saving if there is no broker.

Thats all for now.


*  Now, I am replying for the first time.

Once you have my full attention and I truly hope that you are going to pursue this matter further. It is alarming how many advisors are going down emotionally, stress related illnesses this past year as the industry has kept quiet while the advisors where torn apart by the media and the clients/ public treating as the scum of the earth.



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