Potential conflict of interest

I just wanted to get this out of the way, I have a potential conflict of interest with regards to new Great West Life insurance policies. As I have talked about here in the past, I am paid primarily through commission for selling polices. The way the commission structure works is shown below in an example.

Say I sell a Term 10 Life policy, which has an annual premium of $1000. I get paid a basic commission of 40% of the first years premium, or in this case $400. Now, this rate is pretty standard for all carriers, they pretty much all pay the same basic commissions.

Term 10 = 40%
Term 20 = 50%
Living Benefits (CI, LTD) = 55%
Whole Life, Universal Life, Term 100 = 70%

There is a slight conflict if one were to try and up sell to a more expensive carrier for an equal product, but that doesn't really ever happen as the market pressure for the lowest rate keeps the least expensive policies on top.

Now the part where the conflict comes in, is that there is a second layer of compensation, sometimes called a Bonus or Over ride. The issuing company decides on what Override they would like to pay to an advisor, it usually ranges from 100% to 150% of the basic commission. With GWL I used to have an override of 130%. So on the sample policy above, I would make $400 in base commission and then get a bonus or override of $520 for a total compensation of $920. The override is tied to a level of production, if you don't produce for the company you get a lower bonus. If you produce a lot you get a higher bonus. I received word that my production has not been high enough recently and my override with Great West Life has been reduced from 130% to 0%. Ouch.

I would love to say that the compensation doesn't determine where I place business, and to the most part it is true. I have companies I like dealing with, which includes GWL, and others which I can't recommend. All things being equal, I will always recommend the best product at the best price for my clients, however, I have to eat, and pay my bills as well. Taking more than a 50% pay cut for the same amount of work is hard to overlook. I have put a good amount of business with GWL over the years, I like them as a company, I like their product line especially their Group, Term and Living Benefits products. However, I like Equitable's Term just as much, I like RBC's Living Benefits just as much, and I like Manulife and Sun Life's Group just as much.

So if I have an equal product from another company which will pay me twice as much I am going to have to recommend the one that pays me better. Now this is not to say that I would ever recommend an inferior product just because I get paid more. I am talking strictly apples to apples, comparisons here. Manulife's group product is just as good as GWL's, RBCs Disability policies are just as good as GWL's. The rates are often nearly identical as well. So is it wrong to recommend an equal product to a client on the basis that I know I will make twice as much commission?

In short, I won't be recommending Great West Life policies any more unless absolutely necessary.

I think the only way to solve this is to provide total disclosure on what I get paid. In the next few days I will be working on a new disclosure statement which breaks down my commissions and bonus rates for all the companies I deal with.


--
Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.

Group Insurance Quotes

I've been busy running quotes for a few new group clients, as well as marketing a few existing groups to ensure prices are competitive. This hasn't left a lot of time for blogging. So I thought I would just post the stuff I have been working on. Below you will find a quote comparison for a group of mine, name removed for privacy. The group is currently with Benefits By Design, they are getting a 13% increase in their renewal rates, which I think is somewhat unjustified. So I have marketed the group to a number of carriers, I have included 5 in the comparison (Manulife, Equitable Life, Sun Life, Wawanesa and Great West Life). I have worked with all of these carriers and have confidence in the service and support they provide. As you can see the rates do vary from carrier to carrier, with Great West Life being the most expensive, though still providing a savings over BBD's original renewal. Manulife looks artificially cheap because they declined to quote on Long Term Disability for this group, we would need to add about $600 or so, to their premium, involve another carrier, possibly double up on some Life Insurance etc. so they have been eliminated from the running.

Sun Life is next in line, they are actually providing a savings of $278 per month over what the group is currently paying. This concerns me slightly as I think this is too cheap, I believe there is some heavy discounting going on here and that at next renewal there will be a corresponding increase. If the client is ok with the fact that next renewal will be high, than I have no problem taking the discount, but the client has to be aware of what they are getting into.

Equitable Life looks pretty good, both rates and efficiency wise. You will notice under health and dental the Target Loss Ratio (TLR) field. These number show how much of the premium is directed to claims and how much goes to admin. Ideally you want higher TLR's as this provide more money to pay claims, and less to overhead. Equitable is running 77.8% for health and 78.8% for Dental, this is far better than the current 73.4% and 75% BBD is providing. Wawanesa is the most efficient at 79.7% for both Health and Dental.

A Good example for looking at TLR efficiency is to compare the Health Care rates of Wawanesa with Manulife. Manulife has the less expensive premium of $2069 for health care, but also a lower TLR of 76%. Wawanesa looks more expensive at $2344 but has a higher TLR of 79.7%. When you compare dollars to dollars,

Manulife comes up with $1572 directed to claims and $497 in admin.
Meanwhile
Wawanesa comes up with $1868 directed to claims and $476 in admin.

So while Manulife "looks" cheaper on the surface, Wawanesa will pay more claims, and also charges a little less in admin. At the end of the day having more money funneled to claims means better renewals and more stable premiums.

Assuming the client is comfortable with a sizable renewal next year I would be recommending Sun Life for a combination of best premium, meeting the plan design requirements, as well as having good service and support. If the client isn't comfortable with the idea of a large renewal then my fallback position would be Equitable Life.

Taxation of Critical Illness and Disability Insurance Cheat Sheet

Great West Life, one of the companies I do a fair amount of Living Benefits business with has a great cheat sheet for the taxation of Critical Illness and Disability Insurance. I'll let the sheet do the rest.

Edit: Yay for JPEG compression, better quality here Link to PDF

Edit 2: Replaced images with better quality PNG

Great West Life - Segregated Funds with NEW Lifetime Income Benefit

I just got a huge package from Great West Life, on their new Segregated Fund product. They have jumped on the bandwagon and added a Lifetime Income Benefit similar to Manulife, IAP, DFS, Sun Life, Transamerica etc.

*BIAS DISCLOSURE*

I don't really like these products no matter who sells them, the fee's are just way too high.

Case in point, please see the MER (Management Expense Ratio) chart for the new shelf.



Lets look at the Mackenzie Financial Balanced Fund, once you add in all the bells and whistles and the Lifetime Income Benefit your MER is 4.01%

Yeah, no thanks.

More to come later.