Getting commission for extra loading

When someone is accepted for an insurance policy as a non-standard life, mostly due to health status, insurers may either exclude the condition or load them with extra premium. The loading is to compensate for the extra risks the insurer has to bear. Some insurers pay commission to the adviser for the extra loading premium. I cannot understand the logic of doing this.

Is the ‘extra’ commission an incentive for the adviser to encourage the applicant to be honest and declare all medical conditions? Not declaring your medical conditions would have breached the Principle of Utmost Good Faith, the applicant would risk the voiding of the contract. Helping the client declare the conditions is a duty of the adviser, why should there be incentives in this case?

Maybe it is a form of compensation for the adviser who has to do alot more of follow-up for medical sub-standard cases. But I doubt this is the case. Would the insurers be that generous? In any case, they are already paying for the medical examinations and reports.

On the other hand, would this ‘extra’ commission discourage advisers to fight for the removal of the loading so as to benefit the client? The advisers now has a financial incentive to just let the case go through without trying to get more favourable underwriting results.

I have tried and seen many colleagues trying to get favourable terms for the clients. This can take alot of time, effort and increased blood pressure. Sometimes, we would try other insurers when 1 of them offers unfavourable conditions. This is 1 of the advantages of having access to many product providers.

To the ethical adviser out there, do not let this ‘incentive’ deter you from fighting for the benefit of the client. To the insurers who pay commission for loading, please remove this commission and reduce the loading cost.

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Tags: Ethics