The good news is that the Regulator now understands that not all replacements are bad.
One must question the rationale behind making the receiving insurer accountable for assessing whether a replacement is justified or not, given the enormous pressure from the top for production.
The requirement that “…a managing executive of the insurer or a person of appropriate seniority to whom the managing executive has delegated the responsibility…” must pass judgment on whether the replacement is kosher is an indication that the Regulator wants to ensure accountability. If the current practice of lip service to the existing replacement documentation is continued, however, it is doomed from the outset, unless this is physically supervised by means of visits to insurers’ offices. Singling out advisers, rather than insurers, will just be more of the current approach of treating symptoms rather than establishing the root causes of problems.
The good news is that the initial proposal to ban commission on all replacements was reversed, and will form part of the overall final remuneration model for life risk policies. Some of the suggestions about a possible remuneration model include a 50% upfront payment with the balance paid on an as-and-when basis.
Billy Seyffert, COO of Moonstone Compliance and Risk Management, made an interesting observation at the recent Moonstone Regulatory update workshops. Advisers who operate mainly in the life risk policy area should seriously consider reverting to at least a partial as-and-when model. Apart from creating a more stable income over time, it also provides your business with a tangible asset in the event of you wanting to sell it.
Furthermore, it dilutes the impact of clawbacks, both in terms of quantum and impact in a specific month.
As Mr Darwin said: It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change