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


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, and, 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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Andrew's opinion:

  • Member since: 14 Aug 09
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11 DAYS AGO | They're good - while they last.
Our VR5906LM Roboking - named "Kreecher" was a welcome addition to the household in 2012 and for nearly two years picked up bags of cat fur and teen hair from our mostly tiled floors. When we used the regular vacuum there wasn't much more to collect except in the awkward corners. I cleaned his brushes regularly, removing assorted hair ribbons, lacky bands and other teen girl related stuff. We had one repair done under warranty when he started behaving erratically. They replaced his wheels and brushes, cleaned him up and, I think, upgraded his firmware. He ran fine for nearly another 12 months until his battery started to fade. He then developed a form of “robo parkinsons” – and became erratic and frequently moved in short jerky motions, particularly on our cream tiled floors, where he seemed to sense every line of grouting as an obstacle. He usually gave up after about 15 minutes, whizzed round in circles for a while then couldn’t find his home station.
Being a bit handy I bought a new battery from the LG distributors for $147.00 plus freight, plugged it in, rebooted Kreecher, and sat back to watch. I mentioned his ailments to the LG rep on the phone who lost interest when he realised the warranty had expired.
Sadly, while he now ran much longer, his behaviour got worse - ironically just after the 2 year warranty ran out. Getting to the only LG repair place in Perth was an absolute mission with 70km round trip through the middle of the city the first time. I haven't taken him back - but with a minimum fee of $120 plus whatever repairs need doing methinks "kreecher" is now fiscally defunct. Grrrr - they aren't cheap. LG should offer a longer warranty if they have faith in their product, or at least have a better spread of repair places around the metro area.
Will I buy another? Well they do save labour - but at $300 plus (40-50%) per year depreciation I'm not convinced the LG "robo cleaners" have really arrived yet as a serious household tool. I would expect a good 4-5 years out of them to provide value for money - not barely 2!



Margaret V's opinion:

  • Member since: 10 Feb 14
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17 DAYS AGO | I would also like an answer to KJ's question. I have a very large old home with multiple rooms and find the roomba gets lost despite distribution of multiple lighthouses. I have bought the samsung top of the range in the hope it will navigate better but now wonder if I should have got the LG. The salesman said the samsung battery life was longer than the LG but that does not seem to be borne out by your tests.



KJ's opinion:

  • Member since: 24 Feb 14
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1 MONTH AGO | Hi Could you please clarify your comments on the Samsung Navibot S SR8980. Very good at cleaning along edges or Borderline at cleaning along edges........ And while your at is the other Samsung Navibot seems to have the same issue. Have you been cut and pasting a little too much?



Peter's opinion:

  • Member since: 14 Dec 13
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1 MONTH AGO | I still have the Roomba it is fantastic no complaints I'm still surprised by what it picks up we have no carpet it is perfect for flat floors.



Kpars's opinion:

  • Member since: 16 Jul 14
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1 MONTH AGO | I have had two LG Roboking Square VR6270LVMB in the last month - first one kept stopping and getting stuck, hence I returned it for a replacement and the second one was no better. The concept of the cleaner was excellent if it worked! We never could put it on without it getting stuck in a seemingly ordinary place - and no, our house is not cluttered. I have returned the cleaner and it was kindly refunded. I have had a Roomba 780 on trial, it never got stuck once, but as it randomly cleans - you couldn't be sure the job was complete. LG should be great once they sort the navigation issues.


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