feature / insurance 46 brokernews.com.au

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1 Stri Brokers no longer need to be sold on the merits of diversification. Expanding your service to include insurance is not just a great way to boost your bottom line; indeed, many would argue that it s a broker s duty of care. The real question is what s the best way to incorporate insurance into your business? While some brokers have decided to get the necessary education and licence requirements to offer insurance themselves, others have decided to refer insurance to someone else for a commission. MPA looks at the merits of each strategy, and compares various insurance providers. Writing it yourself Loanmarket s Daniel Pym has been a mortgage broker for 12 years. When he decided to add insurance to his service offering to customers he investigated several options, but in the end decided he d rather write the policies himself than refer customers to an insurance provider. 46 brokernews.com.au

2 ngs to your bow The question is no longer should you add insurance to your service, but rather how should you build it into your business? Andrea Cornish investigates the available options $100k Potential extra annual income from insurance sales $2,000 Cost of a financial planning diploma brokernews.com.au 47

3 It s definitely made me a better mortgage broker. I understand that it can be distracting, but it s worthwhile, as long as you can keep up to date with what s required from both industries daniel pym John Minihan In 2008, he completed his Diploma of Financial Services in Financial Planning and Finance, and in 2010 added an Advanced Diploma of Financial Services in Financial Planning to his arsenal. The cost of getting your Diploma or Advanced Diploma runs for around $2,000 per course, although it varies by provider. In terms of time commitment, Pym did 12 days of face-to-face learning for his Advanced Diploma and about 100 hours of reading. The end result, he says, was well worth it. In terms of a career achievement, it s a good thing to have, but it also allows you to make quite a bit more [money], Pym says. He estimates there s potential to earn upwards of $100,000 on top of what you re making as a mortgage broker. While some argue it s impossible to wear two hats successfully, Pym disagrees. It s definitely made me a better mortgage broker. I do understand that it can be distracting, but I think it s worthwhile, as long as you can keep up to date with what s required from both industries. On top of education and licensing requirements, Pym is required to complete 30 hours per year in insurance CPD points. Pym operates under Insure & Invest Market as an authorised representative of PIVOTAL Financial Advisers Limited. Utilising referral partnerships Ist Street Home Loans Jeremy Fisher is recognised as one of the industry s highest-earning brokers settling more than $131m in residential mortgages last financial year. But adding to that outstanding achievement is his ability to successfully incorporate insurance to his offering. In 2010/11, Fisher wrote more than $105m in insurance. Two years ago, Fisher says he found that both his clients and business could benefit from a referral approach to insurance. He is currently aligned with several financial planners, who he recommends on a case-by-case basis. Fisher acknowledges that, after completing a Diploma of Financial Planning, he considered handling insurance himself. I specialise in home loans and although I would like to do everything, I leave insurance to the experts in that field. I have been fortunate enough to have a high volume of loans to submit, so time constraints are also an issue. His referral fee generally ranges from 20 to 50%. Despite the success of referring insurance to his strategic partners, Fisher says he is considering bringing insurance in-house in Aligning with an insurance provider For the last seven years, Professional Finance Mortgage Brokers John Minihan has been offering ALI s loan protection insurance to his clients. According to the Port Macquarie broker, the insurance provider s offering ticks several boxes. Types of insurance There are three main types of insurance that tend to be most lucrative for brokers: life insurance, income protection and home insurance. 1» Life insurance is designed to protect your loved ones financially when you pass away. Upon your death, your beneficiaries or your estate will be paid a lump sum amount according to the sum insured. This money can be used to pay off any outstanding debts, your mortgage, funeral costs, and can be given to family or friends as seen fit. The most common type of life insurance is Term Life Insurance. 2» Income protection insurance is designed to offer you a monthly income if you become sick or injured for an extended period of time. The funds from an income protection insurance benefit payment can be used to pay rent or mortgage, and living expenses while you focus on getting better. Typically, income protection insurance will pay up to 75% of your income until you can go back to work again or up until the maximum benefit period. Similar to income protection insurance is TPD insurance and trauma insurance, which pay out a lump sum if you become seriously sick or injured. contents and landlord insurance 3»Home, is designed to look after your property and/or possessions in the event of disaster, theft, loss or malicious damage. Landlord insurance is a specialist policy for property investors which also guards against loss of rent. Daniel Pym Jeremy Fisher 48 brokernews.com.au

4 First, it covers our duty of care to raise this important issue with our clients. Secondly, I like the way it fits into our loan process a straightforward option, no complex interviews, but provides an insurance package that suits a large proportion of our clients. Thirdly, the trailing commission and incentive program are a bonus, providing us with another revenue stream. As well, Minihan notes that he s had a couple of clients make claims over the years and he s been satisfied with the way in which they were dealt. Minihan was initially introduced to ALI by his first aggregator, and has continued with the relationship despite switching. The accreditation process was simple, he says, and adds that his BDM, Linda Hayes, provides regular training and updates. While the additional revenue is not enough to retire on, he says, being a regional broker, we need to have good arrangements in place to generate commissions from the collateral business we organise for our clients in addition to the loan. As life insurance commission increases over time, it certainly helps supplement our lending commissions and has now become a core part of our business. PI cover In weighing up which insurance model works best for your business, you should also consider what effect adding insurance would have on your PI cover. Advisernet Australia s Darren Loades indicates that his group does not charge any extra for cover where the broker gets a referral commission on an insurance product. But I do stress that the broker should declare this to his/her respective insurer (as it is a material fact) and should also ensure that their client has been made fully aware (preferably in writing) that the broker may receive a referral commission, so as to avoid conflict of interest and other disclosure issues. As for writing insurance yourself, Loades advises that his group can include cover for an insurance agent s activities for an additional premium of $500 plus GST and stamp duty. However, some of our competitors may either charge quite a lot more than this and/or not want to offer this extension of cover at all, he says. brokernews.com.au 49

5 Super-models A number of aggregators and franchisers have aligned with insurance providers or developed their own model to make it easier for their members to add insurance to their client service. Here s what s available ALI Group Launched in 2003, ALI Group has established itself as a specialist risk insurance business for mortgage brokers and their clients. The group offer two loan protection products through brokers: Loan Protection Plan and Loan Repayment Protection both of which cover for involuntary unemployment occurring during the first 12 months of policy. The benefit includes cover for the selfemployed and people on fixed-term contracts. As the insurance is sold via a no-advice process, authorised representatives are only allowed to offer one or the other. Accreditation includes an application form that allows the group to conduct an ASIC search and background check. Once the broker is deemed eligible, they must attend a product training session with an ALI Group BDM, which helps brokers identify the product best suited to their client base. At the end of the two-and-a-halfhour training session, brokers are tested. Once they pass, they are issued an Authorised Representative number registered with ASIC and are able to offer protection. According to ALI Group, there are several benefits to its model, including: Broker controlled process they get to maintain and strengthen their client relationship The more products a client has through the one broker, the stickier they are a client for life Brokers can provide protection for their client in a timely fashion with guaranteed acceptance rather than a referral which can be a lengthy process often resulting in a client being left underinsured In the context of responsible lending, brokers have a duty to ensure their clients have the capacity to service their loan without undue hardship Peace of mind for both the broker and the client Attractive remuneration, diversifying their income Commission is via a combination of upfront and trail, or trail only. Its standard commission is 30% upfront of the annualised premium for each loan protection policy when the customer makes two premium payments and 10% trail. ALI says that, on average, brokers can earn $181 upfront and $60 trail per policy for a single person, and $331 upfront plus $110 trail per joint policy. Advantedge Advantedge has developed three different options for FAST, Choice and PLAN brokers looking to offer insurance. The group launched its referral model, allowing brokers to refer insurance business to a purpose-built call centre in early Head of Advantedge Financial Solutions, Craig Saville, indicates that take-up of the offering has been good, with just over 1,000 brokers accredited to refer its loan protect debt insurance product. Saville says brokers can benefit from this referral model. Many brokers today are trying to be both an advisor on the insurance end and a mortgage broker. And the requirements under NCCP and the financial planning legislation are quite intense. Our program allows them to concentrate on what they re really good at. So the broker is only spending about 10 or 15 minutes with the client. They re outsourcing it in the true sense of the word, they don t have to maintain all the current legislation, letters of authority, CPD points, their software, or the licensing costs associated with being an advisor. They can outsource that to us, we pay them a commission rate in return, which we disclose to the client as well. For brokers that choose to be remunerated upfront, they receive 40% of the premium upfront the first year and 12% ongoing. Premiums average $1,000, so brokers typically receive $400 upfront, and $120 ongoing. The accreditation process takes about 90 minutes, and Saville says there is ongoing education for brokers that need help integrating insurance into their sales process. An alternative option is Advantedge s partner planner model, which allows brokers to refer business to an Advantedge-licensed but independent financial planner, and share a commission. The financial planner is connected to a pod of 5 10 brokers. Lifebroker Lifebroker has been offering insurance through mortgage brokers for two-and-ahalf years and gives brokers access to life insurance, income protection, trauma insurance and TPD cover. According to the provider, there is no accreditation process because it designed its model to be as easy as possible for brokers. In speaking about its benefits, a spokesperson for the insurance provider stated that the Lifebroker model enables brokers to confidently offer their clients added financial security and protection, and it heightens revenue, increases client contact, enhances professionalism and supports a robust business model. 50 brokernews.com.au