On Saturday, (28th January 2017) I had the pleasure of being interviewed live on Radio 4 by Paul Lewis for the BBC MoneyBox program (My section starts at 12 minutes)
My subject dealt with the commissions on life insurance policies sold through comparison websites like MoneySupermarket compared to the commissions that advisers might earn for selling the same policy.
(Please note that PayingTooMuch.com is a full service insurance brokerage and does provide online discounted quotes for life insurance, but we also offer much more in terms of human help to those considering life insurance, something I believe adds great value.)
Paul wanted to make the case that comparison websites were collecting the commissions as if they had given regulated financial advice. It was my job in less than 3 minutes to balance the argument and explain that the commission covers the cost of distribution that can take many forms and is not just for ‘advice’.
The upshot is that life is never as simple as a 3-minute audio clip.
- Advisers are almost never the ‘cheapest’ way to buy life insurance, as the advisers need to cover the costs of providing ‘advice’ and many advisers aren’t interested in lower premium business.
- Probably the most expensive way to buy life insurance is direct from an insurance company’s website. The insurers think these customers are buying into their ‘brand’ and hence sometimes take advantage of this.
- An insurer or adviser that puts its premiums online, especially into a comparison, is likely to be cheaper than an insurer or adviser that doesn’t.
The co-presenter Tony Bonsignore chose to research MoneySupermarket.
The example Tony used was for a £13 per month policy paying £356 commission to MoneySupermarket.
Who are MoneySupermarket anyway?
- Established in November 1999
- One of the first and now largest aggregators in the UK insurance market
- Aggregators don’t provide financial advice and often sell your details to the highest bidder who then tries hard to sell you a policy
- Group turnover £281m and group profit £80m (2015 accounts)
- Chief Executive Peter Plumb, annual salary and bonus £1.2m+, previously worked at Disney, Dyson and PepsiCo, (never to my knowledge has he ever given regulated financial advice to a private client).
- Have the most complained about TV commercial in 2015 and 2016 featuring ‘Gary’ the dancing bodyguard with the exaggerated bottom and high heels.
MoneySupermarket are a very successful business and have concluded that repeated edgy TV commercials generate profits.
Like most aggregator websites MoneySupermarket are on the marketing treadmill, if they stop marketing their business falls.
Does this mean they have poor repeat buyer rates and it’s difficult to differentiate between them all?
What does this mean for the ‘value for money’ that they can pass on to their customers if they are constantly paying out so much money to advertise for new business? Are MoneySupermarket taking too much life insurance commission?
- Life insurance is one of the most difficult financial products to sell, it’s not compulsory and does one way or another require a degree of persuasion or nudging to encourage most customers to buy it.
- The commission life insurers pay to MoneySupermarket is around 10% of the total premiums payable if the customer held their policy to term. This percentage is around the same as a car insurance commission and around half of a home insurance commission.
- The commission rates MoneySupermarket receive are amongst the highest in the land purely as a result of their volume and size. Good old ‘Gary’ drives sales, but of course he has to be paid for too.
- Many online/on-phone businesses do discount their premiums. Take PayingTooMuch.com for example; we always discount our premiums by taking lower commissions, (but then we don’t have ‘Gary’)
In summary, I believe that MoneySupermarket could take lower commission and reduce premiums if they wanted to, but they’re run by businessmen trying to generate as much profit as they can from their available distribution. After all they don’t claim to be the cheapest.
So shop around, if you don’t need regulated financial advice there are cheaper deals on the market.
It’s a pity I couldn’t find the right words to get the message across in 3 minutes, but then maybe I was never going to in reality.
Michael Ward - Managing Director, PayingTooMuch.com