Changes in Distribution Life insurance products

2.2 Changes in Distribution Life insurance products used to be sold by tied agents, who were essentially product salespersons ‘tied’ to a product manufacturer. The usual method of remuneration would be a (higher) upfront and a stream of trail commissions (usually lower). Whilst providing agents with the incentives to sell product, this remuneration structure creates at least two challenges for the product manufacturer: • Firstly, writing business with up-front commission consumes significant amounts of capital. • Secondly, high upfront capital also incentivizes the switching of consumers from one company to another (a practice referred to as churning). The rise of the unit trust industry – and the unbundling of the investment and protection components that were hitherto all bound within the traditional whole of life (WOL) or endowment policies in the ‘80’s – had the effect of requiring agents to provide investment advice also, especially as the number of alternative investment options grew. The increasing sophistication of their product offering gave rise to the need for more holistic financial advice, not just product information – this played a key part in the growth of the advice industry. The passing of the legislation the Insurance Agents and Broker’s Act (1984) also opened the door for many hitherto tied agents to become multi-agents, which many did.