Wednesday 21 February 2018

Life insurance faces shake-up as fees and charges under scrutiny

Charlie Weston Personal Finance Editor

LIFE and pensions providers are facing mergers, exits and a radical scaling back of their operations, a leading Central Bank regulator will tell a conference today.

Life companies will also be told to alter the way they pay commissions to advisers to stamp out the churning of policies. This is where consumers are moved from one provider or policy to another in a bid to generate new commissions.

Some life companies are tackling "commission competition" but more firms will need to change their business models, head of life insurance regulation at the Central Bank, Mark Burke, will tell the conference.

The sector needs a shake-up because firms still have the same cost base now as existed during the boom, he will tell the delegates at a life and pensions industry conference, organised by Eunan O'Carroll of Core Consulting.

This was despite a 60pc to 70pc fall-off in new business being written since the market peaked four to five years ago.

This means the three main players now control 70pc of the market. Mr Burke does not name these companies but they are understood to be Irish Life, New Ireland and Zurich.

There are between seven and eight firms based here in the pensions and life business, with a total of 16 if companies based in the UK that sell here are also counted.

Mr Burke says some companies have begun to tackle their cost base, and lay off staff.


But he warned this may not be enough.

"Others have or may exit the market. If measures undertaken are not sufficient, it is likely that we will see greater consolidation as firms merge, scale back or exit the market."

The industry is suffering from high costs, higher lapses and surrenders of policies and high commissions paid to intermediaries.

Consumers are switching around from their life, mortgage protection, term insurance, pensions and investment policies from one provider to another.

He blames this churning, or recycling of business, on high upfront commissions for advisers. Although people are also switching as premiums have come down.

It is understood that upfront commissions stand at between 1pc and 5pc of the first year's premium; a renewal commission of between 0.25pc and 0.5pc is then paid every year.

A recent report for the Department of Social Protection found that fees and charges can each make up between 21pc and 31pc of the value of PRSAs and executive pensions.

Less commission should be paid upfront, when a policy is taken out, and instead the commission payments should be level across the life of the policy to encourage what is called persistency, Mr Burke will say.

Conference organiser Eunan O'Carroll is set to defend the commission system, but to concede that the timing of when commission is paid can change.

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