Sun Life has made the compensation of its Par Accumulator II participating whole life insurance more level beginning Feb. 16, the insurer said in a note to agents.
The change decreases first year commissions for life, 20-pay and 10-pay policies while increasing it from the second year onwards.
The 10-pay policy used to pay a 35% first year commission with 5% in years two and three and 2% thereafter. The new scale provides a 17.5% first year commission and 10% from the second year onwards.
Life and 20-pay policies used to pay a 50% first year commission with 5% in years two and three and 2% thereafter. The new regime will be 25% in the first year and 10% from the second year onwards.
High early cash value products with high initial commissions could expose the participating account to “potential adverse experience” and requires high capital requirements, Sun Life said in the note.
“The levelized commission structure is intended to reinforce the strength and long-term health of the Sun Life Par Account and provide protection to participating clients from potential adverse experience and capital risk, benefiting clients with even greater dividend stability in the future,” Michael Van Alpen, vice-president of insurance solutions at Sun Life, told Investment Executive in an email.
Ongoing commissions that underestimate the level of service expected of a life agent were among the concerns of the Canadian Council of Insurance Regulators and Canadian Insurance Services Regulatory Organizations’ incentive management guidance issued in 2022.
The incentive management guidance document said discrepancies between commissions for initial sale and ongoing services can, for example, cause agents to propose transactions with no clear benefit for the client solely for additional commissions.
The changes Sun life has made to its compensation system will offer advisors higher long-term commission in many cases and align advisor incentive with client service throughout the policy’s lifetime, Van Alpen said.
“It’s definitely aligning the service aspect of the business with what’s being recommended and what’s in the best interest of the client,” said Justin Manning, an independent advisor in B.C. and a former Sun Life advisor. High upfront commissions can cloud some agents’ judgment, so this could also reduce incentives for illegal behaviours like premium rebating.
However, there may be some short-term pain for Sun Life as independent agents may recommend other insurers for higher first year commission. “Some advisors are going to move away [from Sun Life] and go towards the other carriers that aren’t implementing this until [more level compensation] becomes a wide sweeping industry change,” Manning added.
Manning is hopeful that other insurers will consider making their compensation structures more level but noted that the industry is slow to change.
“Nobody really likes being first. They want other people to dip their toes in first,” he said.