Commission rebate schemes

With health insurance premiums on the increase, switching to a commission rebate service may put some money back in your pocket.
 
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01 .Reclaiming the kickbacks

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Hidden financial fees will presumably start winding down with the official launch of the Future of Financial Advice (FoFA) reforms in July – but there will still be plenty to watch out for. 

If you’ve bought your health insurance through a third party such as a financial adviser, online comparison service or broker, for instance, part of what you pay is likely to be passed along to the person who sold you the policy as a sizeable one-off payment, a steady stream of kickbacks (known as a “trailing fee”) or both. While the reforms are meant to put an end to most “conflicted remuneration” schemes, the bad news is that insurance commissions outside of superannuation are exempt. As it happens, about 50% of all insurance policies in Australia are purchased through brokers. 

CHOICE covered the ins and outs of commission rebate services across most of the financial spectrum in a 2009 investigation, but at least two rebate services, YourShare.com.au and BetterBills.com, are now including health insurance in the mix. The timing of this recent development is good, since health insurance premiums increased by an average of 5.6% recently.

Commission rebate services ask you to cut ties with your broker or adviser and allow the service to take over the ongoing administration of your account. Whatever commissions the broker has been getting go to the rebate service, which then returns a portion of them to you. How much they return, and how often they return it, varies from service to service. According to the health insurance commission rebaters we spoke with, signing on to a service can put about $300 back in your pocket every year – money that would have otherwise gone to a broker or adviser who may be doing very little to earn it.

The broker's cut 

The kicker with some insurance products is the upfront commission, which can reach 130% of the first year’s premium in the case of life insurance, followed by as much as a 30% cut to the sales agent every year thereafter. These costs are woven into the premium you pay. Brokers tend to be secretive about how much they’re getting, and the size of the cut varies depending on the arrangement. 

One rebater we reviewed told us commission levels for health insurance currently hover at about 25%. Unless you take out a policy through a rebate service in the first place, rather than handing over the administration of an existing policy, you won’t be getting any upfront commissions back. However, by switching to a rebate service in midstream you can defray your premium costs by receiving a share of ongoing commissions, an opportunity you would have otherwise missed out on. 

How FoFA affects the commission rebate industry in areas where commissions are on the chopping block (such a managed funds) remains to be seen. As late as March this year, ASIC had yet to provide clear direction on whether some financial products with longstanding built-in commissions will be grandfathered even for clients who sign up after the FoFA reforms kick in on 1 July. What is clear, however, is that the commission ban will generally only be applied to arrangements that start after this date.

Why worry?

Why are commissions so bad? Simple. If one insurance product pays higher commissions than another, the broker or adviser may be tempted to recommend the product that pays them more, regardless of its suitability to their client’s circumstances. The setup seems even more sinister when you consider many customers aren’t aware a commission scheme even exists. We expect the FoFA reforms to enable consumers to sidestep commissions altogether in many areas of financial services, but in the case of insurance purchased through a third party, the age-old commission regime will remain intact.


 
 

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Here’s how two health insurance commission rebaters dole out your cut of the kickback. Aside from commissions, we haven’t investigated how these sites function as insurance shopping tools and don’t recommend them for that purpose.

YourShare.com.au vs. BetterBills.com
YourShare.com.au BetterBills.com
Profile One of the top performers for super accounts with less than 50K in our 2009 review, YourShare has been awarded Best Cash Back Provider by Money magazine for the past five years. This rebater has just started to offer health insurance rebates. A relative newcomer to the cashback scene, BetterBills is focusing mainly on health insurance for now but says it plans to expand into other types of insurance. The comparison site recently started including energy providers.
Products YourShare currently has a rebate commission arrangement with just one health insurer, NIB. CEO Paul Brady told CHOICE the company is looking to add more insurers provided their terms are "transparent and fair". NIB was a recommended policy for the least expensive hospital cover available (to avoid paying the Medicare Levy Surcharge) in our 2012 market review, and a long-term top performer in previous reviews. BetterBills says it has commission agreements with about 2500 of the 10,000 health insurance policies included on its website, or 11 funds. It aims to cover 85% of the market, or "as many of the 37 funds as possible". Founder Tim Andrew told us commission agreements have no influence on which policies the site recommends as "best" or "cheapest", although one with a cashback offer is always included.
Cashback
  • YourShare members are entitled to an eight per cent (or one month) annual discount on NIB policies
  • YourShare pays the four per cent annual commission it receives into members' cashback accounts. It works out to savings of $292 on a $2500 annual premium (Note: the terms are different for current NIB policyholders)
  • Members receive one payment per year along with a statement showing the amounts and dates of commission flows generated by their policy
  • BetterBills splits commissions 50/50 with its members in all cases where it has an arrangement with the provider. Andrew says commissions average about 24% of the premium – so members get 12% back
  • For health insurance, BetterBills says the average cashback payment is $250 a year
  • BetterBills rebates half the annual upfront commissions along with half of any trailing commissions at the time they're received
 
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