Agreements and commission model.

Commissions - FAQs

• What’re the metrics of the new scorecard?

  The metrics are outlined below. More granular detail on these and the bands are addressed further in this FAQ. 

  Persistency (60% weighting):

  This measures the financial advice provider’s (FAP), or authorised body’s (AB) if the FAP’s in force is greater than $4m, cancelled & lapsed API (annualised premium in force) during the year against their average API. Note: this includes any book purchases or sales transferred to or from your in force and will be reflected in your starting and ending API.

  Cancelled & lapsed API are reductions in API, which happens when a customer leaves or reduces premium. Average API is the average of their in force API at the start and end of the year. This considers new business, CPI, age related and contractual increases.

  Persistency has a heavier weighting in the scorecard at 60% as it’s the key driver of long-term sustainability.

  Policy count (30% weighting):

  This is the number of in force policies as at 31 March each year, based on policy count, not API.  It takes into account lapses as well as new business and any policies acquired or sold during the year.

  This recognises the responsibilities of a business in managing books – the larger the book, the more work required.

  Conversion rate (10% weighting):

  We’re introducing a measure for conversion rate which includes all submitted new business where the application’s been put in force or not. It does however exclude all submitted new business where the application is still waiting on underwriting approval or customer acceptance. 

  The aim is to recognise the effort that goes into working with customers in the onboarding process by advisers as well as us. 

  Currently the average conversion rate is 75% across the business.

• What data’s included in the commission model?

  All Fidelity Life and Tower books (except for Tower Funeral and Group).

• Is the scorecard calculated for the individual adviser or FAP?

  For most advisers the scorecard will be calculated at a FAP level using cumulative data from the agencies that sit within the FAP. 

  For FAPs where the cumulative API is greater than $4m, we’ll calculate the commission payable at AB level.

• Does the scorecard apply to initial or renewal or both?

  The scorecard will determine the level of initial commission an adviser receives. In the new model for new business we’ll combine renewal and service commissions into one rate of 10% which we now refer to as ‘servicing commission’.

  An adviser’s ability to increase ongoing commission remains an option under our revised spread model.

  Note: the level of ongoing commission an adviser receives on their existing book will remain unchanged.

• What’s ongoing commission?

  ‘Ongoing commission’ is a collective term for commissions that continue for the life of the policy. Under the pre-July 2021 model, these were renewal 6%, service 4% and spread, which is deferred initial commission (at time of issue an adviser can choose the % of initial commission that’s spread and to be paid over for the duration of the policy). In the new commission model, ongoing commission is the collective term for ‘servicing’ and ‘spread’.

• Has spread commission changed?

  We’ve changed the formula to a maximum of 50% spread and dividing by 6 instead of 5, if you have queries in relation to this please contact your BM/BAM.

• If new advisers join a FAP, what impact will that have on the existing advisers within the FAP?

  The scorecard is based on the FAP score, so an adviser will join based on the current FAP score. The new adviser’s individual score will influence the FAP score at the next review point for the scorecard.

• Why can’t an adviser have their own scorecard?

  In the new regime the license is held by the FAP and our approach recognises the collective efforts of all advisers engaged by the FAP. 

• Does an adviser’s disclosure statement need to reflect the FAP rather than individual?

  Advisers will need to disclose what their business and them as individuals are receiving as a result of doing business. The specifics of which are outlined in the FSC’s disclosure guidelines.  

• How’s persistency measured?

  This measures the FAP’s cancelled & lapsed API during the year against their average API.

  Cancelled & lapsed API are reductions in API, which happens when a customer leaves or reduces premium. Average API is the average of their in force API at the start and end of the year. This takes into account lapses, new business, CPI, age related and contractual increases.

  Note: this includes any book purchases or sales transferred to or from your in force and will be reflected into your starting and ending API.

  Here’s the formula that’s used in the calculation:

  Persistency = 1 - cancelled & lapsed API in the year / average API over the year 

  And here’s an example of how it works:

  FAP “Example Co”, started the year with $100k in force API. Over the course of the year, they increased API by $30k for new business and $10k for CPI and age increases. They decreased API due to lapses of -$10k.

  At the end of the year they had $130k in force API.

  Step 1: what’re the cancellation & lapses i.e $10k.

  Step 2: what’s the average API i.e. starting API $100k plus end API $130k. The average of this is $115k.

  Step 3: what’s the percentage of cancellations & lapses compared to average API i.e. $10k / $115k = 8.7%.  Sometimes this is called ‘lapse rate’.

  Step 4: calculate persistency i.e. 1 – 8.7% = 91.3%.

  Example Co has a persistency rate rounded to 91%.

  Note: we use Swedish rounding, so if an adviser has 90.5% persistency, they’ll be rounded up to 91%.

• Customers lapse for reasons outside of an adviser’s control. How have we taken that into consideration?

  It’s not expected that advisers have 100% persistency, so we’ve taken into account natural lapsing when setting the persistency scorecard bands. 

  We recognise that there are things that happen outside the control of advisers. As such, we’ve made a number of exclusions from cancelled & lapsed API:

  • Full claims.
  • Covers that lapse or cancel within the 14-day free look period.
  • Covers at expiry age.
  • Covers at end of level term.
  • Covers that lapse and are then reinstated.
  • Covers that have reduced due to change in smoker status.
  • Cover conversions e.g. if converting from stepped to level and the API is reduced, it isn’t included as lapsed.
  • Cover merges e.g. merging two polices into one and if API is a lower value. The reduction isn’t considered lapsed.
  • Cover splits (opposite of merges), where it’s from one policy to two.
  • Covers moved to paid up status. Paid up is where they’re still covered but don’t need to make any more payments (but not Waiver of Premium). It’s more related to things like Funeral Cover where the policy is designed for premiums to stop at a set point in time.
  • Partial claims (where only a portion of the full sum assured is paid e.g. partial trauma claim for minor melanoma) don’t result in a reduction in API and premium and wouldn’t trigger a lapse event – hence no impact on the persistency calculation.
• Will we consider the economic environment (incl events such as COVID-19) and the impact it may have on persistency?

  We’ll monitor the economic environment and the impact on the commission model.

• Sale of book process - what’s the impact on persistency?

  The persistency goes with the book to the new owner and the FAP scorecard is reviewed annually.

• How’s conversion rate (CR) calculated?

  Basically, conversion rate is the percentage of issued business compared to submitted business. Whether a policy converts from submitted to issued depends on several factors, such as understanding customer circumstances, knowing our underwriting terms and engaging with our underwriting team. We categorise the policies that don’t get issued as not taken up (NTU) or 14-day cancellation.

  Here’s the calculation

   = 1 – (Not taken up (NTU) + 14-day cancellation) / total submissions where an outcome has been reached over the period.   

  Here’s an example

  FAP ‘Example Co’ has submitted 20 policies during the year. 6 are either NTU or are in force but cancelled in 14-days. In the end, 14 are issued.

  Step 1: figure out the NTU & 14 day-cancellation as a percentage of total submissions i.e. 6 / 20 = 30%

  Step 2: turn this into the conversion rate i.e. 1 – 30% = 70% conversion

  Example Co has a conversion rate of 70%

• What’s NTU and 14-day cancellations?

  NTU is ‘not taken up’ and includes deferred / unable to offer terms, those policies that are withdrawn, or where terms aren’t accepted. A policy that went in force and was cancelled during the 14-day free look period (the customer decided not to proceed) is also included.

  Our current average conversion rate is 75%.

• If we decline or defer due to underwriting guidelines is this included in NTU?

  Yes

• Will pre-assessment be included in the conversion scores?

  The conversion rate doesn’t include pre-assessments, these are handled separately. We encourage you to contact our Underwriting team for pre-assessments and queries.

  A pre-assessment is defined as:  A request for an underwriting assessment of a potential customers’ medical notes when we haven’t received an official application (i.e. a Fidelity Life application form). This may be a request for underwriting to obtain medical information from another company to assess, or when medical information is provided directly to Fidelity Life underwriting for an opinion on terms/cover. 

• What’s in force policy count?

  In force policy count = number of in force policies based at end of the year i.e. when we take a snapshot of the data on 31 March each year.

  Here’s an example of how it works

  Here is the in force policy count for Example Co:

  Step 1: what’s the number of Fidelity Life policies at 31 March i.e. 46

  Step 2: what’s the number of Tower policies at 31 March i.e. 4

  Step 3: add them together i.e. 46 + 4 = 50

  Example Co has an in force policy count of 50.

• What if an adviser buys/sells another business, will it change their scorecard?

  Yes, at review date if the metrics of the FAP have changed, their overall score will also.

• What arrangements do we and advisers have with strategic partners (previously known as dealer groups)?

  The new commission rates include any dealer group override percentage which ensures that advisers are aware of the commissions paid in respect of the policy and can disclose it adequately to their customers.

• How can you improve your scorecard?

  Persistency (60% weighting in the scorecard):

  There’s a number of factors that influence retention depending on individual customer situation. In a nutshell it’s about reducing cancelation and lapses.

  It’s important to note that both new business (including contractual increases) and lapses will impact persistency in the new model.

  Conversion (10% weighting in the scorecard):

  Essentially, it’s about submitting business that has a strong likelihood of converting and meeting our underwriting guidelines. It’s also about making sure the customer understands what they’re applying for and therefore reducing 14-day free looks.

  In force policy count (30% weighting in the scorecard):

  Maintaining or increasing your policy count will be an outcome of:

  • New customers onboarded.
  • Providing ongoing servicing of existing customers to reduce lapses and cancellations.
  • Consolidating (purchase other FAPs/ABs) or bringing on more financial advisers (FAs).
• How often will advisers get paid?

  At this stage we’ll continue to have two commission runs per week.

• What if an adviser isn’t in the new regime but still wants to get paid renewals?

  Only by exception. Advisers who aren’t in the regime will only be paid by prior approval by Fidelity Life (which will be based on level of comfort as to the customer being serviced appropriately by an adviser who’s in the regime).

• Can advisers split their commission with other businesses?

  We’ll allow advisers to continue to split commissions. Providing the other party has an agreement with us.

• What happens to writebacks if an adviser changes FAPS?

  We’ll seek writebacks from the place where it was paid to.  

• Will Fidelity Life issue a monthly statement?

  Commission statements will be available via Adviser Centre.

• How long will it take an adviser to get paid commission if they change FAPs?

  This depends on when we’re notified and on the existing payment arrangement they have with the FAP they’re joining. We’ll continue to make payment twice per week as usual.

• Who receives, and who’ll see commission statements?

  Whoever receives commission will receive a full itemised statement.

• What initial commissions dial down options are available?

  You’ll still be able to dial down your commission by reducing the commission dial down- initial percentage in Apollo.

• What commission is payable on ‘own life’ business?

  There’s no commission payable on business written on an adviser's own life, the life of their spouse or partner, their children, or their parents.

  Business written on the lives of their siblings will receive a maximum of 50% commission upfront, with the balance spread to provide an increased ongoing commission.

• What servicing commission is available on new business?

  Under the new model we’ll be combining renewal and service commissions into one rate of 10% which going forward is referred to as ‘servicing commission’.

  Servicing commission on new business is set at 10% upon compliance with the servicing requirements in each agency agreement from month 13 onwards and is paid on receipt of premium.

• What servicing does an adviser have to prove to meet their obligations?

  Advisers need to meet the expectations of the regulators and their customers, including keeping sufficient records to demonstrate this.

• Terminology changes.

  We’re refreshing the terminology in Apollo to align with our new commission model. In the technical information screen of Apollo from 31 July 2021 you’ll see the following changes.

  We'll progressively be working to update all of our systems for this new terminology.

  From	To
  Risk - Initial	Commissions dial down - Initial
  Risk - Renewal	Commission dial down - Servicing
  Fixed Sum Assured Loading	Commission on Per Mille Loading
  Spread Commission (title)	Ongoing Commission (title)
  Upfront Initial Risk	Upfront Initial Commission
  Total Renewable Payable (Year 2 Onwards)	Ongoing Commission (Year 2 Onwards)
  Deferred Initial Commission	Spread Commission
  Base Renewal	Servicing Commission