keulen 141114

Compensation of Insurance Intermediaries in The Netherlands dr. Fred de Jong

Cologne, 14th November 2014

Content 1.  Market Structure 2.  Legislation on Compensation Schemes 3.  New Business Models of Insurance

Intermediation 4.  Evaluation of the effects of the Commission

Ban

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MARKET STRUCTURE

Insurers Reinsurers

Cliënts

Independent brokers

Serviceproviders

11 221

7.775

Marktpartijen in distributieketen verzekeringen en hypotheken (2014) R

egisters R

epresentators

21

6 Captives

Bronnen: DNB, CBS, AFM , VNAB

Authorised Agents

16,8 mln. Consumers, 7,6 mln. Housholds 800.000 SEWP 864.000 companies

Banks 72

Market Brokers

314 49

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NEW MARKET STRUCTURE

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Market Failure

  Quality of advice too low   Financial advice has high impact on welfare and

well-being of clients   Competence level and skills not adequate

enough   Product driven instead of client based advice   Perverse incentives (commission)   Product bias – Supplier bias – Amount bias

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QUALITY OF ADVICE INCENTIVES   Market failure in all channels

  When commissions are lower or completely forbidden, the medium quality of advice will rise

  Independent advice: more work and a bigger chance of a best match between supply and demand

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Legislation

License system (2006) Commission ban on complex products (2013) Inducement on fees (2013) State exams for professional qualification and PE

(2014)

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COMMISSION BAN

  Complex products

  Investment products

  Mortgages

  Insurance against inability to work

  Income Insurance

  Payment Protection Insurance

  Funeral Insurance

  Life Insurance 8 fred@freddejong.eu

  Cost-efficient   Useful   Safe   Understandable

SERVICES AND PRODUCTS

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EXPERIENCES COMMISSION BAN

  Goal: improve quality of advice and reduce negative incentives

  Positive   Bigger variety and more choice for customers

  Prices are lower (advice is cheaper)

  Prices and services are more transparent   Negative

  Willingness to pay is low

  Commissions allowed for non-life do not create real

independency 11 fred@freddejong.eu

NEW BUSINESS MODELS

  Hourly rate   Fixed price   Service subscriptions   Hybrid models

  But commission still dominant

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(AFM, SER) 13

CAUSE • License system • New legislation (more costs) • Economic Crisis (less income) • Severe competition (internet)

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CONCLUSION

  Effects of commission ban are more positive than negative so far

  Timing is difficult   ‘Threat’ of a total commission ban   Be aware: The medicine has to fit the disease!

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