Q. What are the associated products that a broker can sell?
Term assurance, critical illness cover, buildings and contents insurance (B+C), accident, sickness and unemployment (ASU) or mortgage payment protection insurance (MPPI) as it is often called, are all mortgage-related products areas for brokers.
Q. What is the main benefit for a broker to start selling a wider range of products alongside the mortgage?
Recent developments in the financial services industry have seen brokers suffer from a decline in income from sources they usually relied on. The main change has been in endowment sales which, due to reducing investment returns, have proved less popular. With the introduction of stakeholder pensions, IFAs have also seen their income in this area decline.
Expanding into products associated with the mortgage sale gives brokers the opportunity to earn more fees to compliment the income from mortgage procuration fees. As an additional benefit, brokers offering a wider range of products have the opportunity to secure a better and stronger relationship with their client.
Q. Associated products sales have always been sold ‘ what is the propensity to purchase these products now?
Some associated products such as buildings insurance are a requirement for all mortgages. Figures now show that around 80% of all borrowers have contents insurance and over a third of new borrowers take out some form of ASU. These figures illustrate that providing brokers can offer a range of products as competitive as the borrower’s mortgage lender, they are in a good position to maximise sales. It is now recommended by lenders that all borrowers should arrange some life protection for their mortgage and term assurance fills this need well.
Q. Is there any regulation brokers should adhere to when selling associated products?
Later this year, the General Insurance Standards Council (GISC) will take over the regulation of selling general insurances, such as buildings and contents and ASU, from the Association of British Insurers (ABI) Code of Conduct. The GISC regulates the sales, advisory and service standards of members to ensure that general insurance customers are treated fairly. If a broker chooses to use more than one product provider for any particular line then they will need to take up their own GISC membership and to be a genuine insurance broker individuals will need to offer a range of products. Discussions on the precise format of GISC are still continuing and are likely to be formalised in the autumn. Details of the code can be found on the GISC website at www.gisc.co.uk covering marketing, documentation that should be provided, conforming cover, advice and recommendations. Copies of the code can be downloaded from the site. Term assurance is sold in a non-regulated environment and, as such, offers brokers the opportunity to potentially earn more commission, do less paperwork and also, for brokers who are tied, the opportunity to sell a wider selection of products.
Q. What is the best way to access these associated products?
It depends very much on the size of the broker’s operation. If you are dealing in significant volume, brokers may want to set up a bespoke general insurance arm and offer a range of products from a range of companies. Alternatively, brokers may be happy to offer a limited range ‘ whether by negotiating directly with the providers, or dealing through a network that has already carried out these negotiations on their behalf.
Q. Are multiple product sales difficult?
If you are presenting quotes from a variety of sources the presentation can be complicated and time consuming, however, some mortgage networks do provide the opportunity to produce an integrated quote and, in some instances, submit the application online
Q. How are the commissions payable worked out on associated products?
Commissions will vary depending on product type and premium. Term assurance offers brokers a commission based on annual premium or sum assured and is normally expressed as a percentage of this figure (this can be up to 145% of the first year’s premium on an indemnity basis). Brokers need to be aware that ‘clawback’ arrangements will apply if policies do not run for a minimum period which can vary between two and four years. Alternatively, commission can be taken on an ‘as earned’ basis where the commission will be paid regularly each month in line with the premium payments. This method of commission payment is invariably used where ASU and B+C are sold. As a guide a broker should be able to earn up to 25% of premiums paid for as long as the policy is in force. A combination of indemnity and as earned payments gives brokers a good income blend of immediate income combined with ongoing regular payments.