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What your insurance broker doesn't want you to know Add to ...

The latter two are structured with one purpose in mind: to promote loyalty and encourage brokers to bring as many customers to that insurer as possible. The more the broker consolidates his clients' business with a particular insurer, the more lucrative the deal gets.

In life insurance, the upfront commissions have traditionally been high compared with other industries, because the product has always been a tough sell compared with other consumer purchases.

If a customer buys a universal life insurance policy that requires him to pay $1,000 in premiums the first year, the agent is likely to earn a commission of about $600 up front and a further $1,200 in a bonus at the end of the year, provided certain sales levels are met. That doesn't include incentives such as trips, nor commissions for keeping the policy in force in future years.

Brokers also can get paid extra for bringing in an insurer's favourite kind of customers - the kind who stay, or who don't make claims. For example, a broker who sells five group life insurance accounts for Standard Life paying total annual premiums of $3-million could earn a bonus of $30,000 if none of the clients take their business elsewhere. P&C insurers sometimes offer bonus payments for signing policies with "good customers" who file fewer claims.

The principle that a broker's first responsibility is to the client is contained in industry codes of conduct.

Don Bailey, who stepped down last month as the head of Canadian operations for Willis Group, one of North America's largest insurance brokers for corporate and business clients, says the industry and regulators need to tackle the transparency problem.

"What you see is agencies and brokers knowing what their targets are, and knowing that if I can shift this much premium volume to another carrier before the end of the month, or before the end of the quarter, then I can trigger a cheque," Mr. Bailey said. "These [sums]are not incidental. They are significant amounts of money.

"If I'm the buyer, that should put in doubt why somebody is recommending one carrier over another. Is it because they truly believe that carrier is better? Or is it because they have a big cheque coming?"

'White sandy beaches'

Free trips are used by the insurance companies to tell brokers about their products, but they are also tools for instilling loyalty, ensuring that brokers are not tempted to direct business to rival firms, especially in the life insurance industry. The insurance companies detailed this strategy to The Globe and Mail.

Like consumers who sign up for loyalty programs or use premium credit cards, life agents accumulate points as they sell policies for a particular firm.

"I know some agents who say, 'Okay, I'm going to do business with [another] company this year because they've got this convention somewhere, or it's too difficult to meet your criteria to go to your convention,'" said Bruno Michaud, senior vice-president of administration and sales at Industrial Alliance. "At the end of the day, we see a convention for advisers as an award for the advisers for doing business with us. And it's a good occasion to develop a stronger sense of belonging to the company."

In the standard disclosure letter given to consumers at the time of purchasing a life insurance policy, there is a line stating: "From time to time, some companies may offer other types of compensation such as travel incentives or education opportunities."

But well out of the consumer's sight, internal industry documents obtained by The Globe and Mail detailing these perks are fashioned conspicuously like vacation brochures for luxury golf outings, cruises and sightseeing trips. Industrial Alliance's pamphlet shows photographs of crashing waves and exotic flowers, and invites brokers to "enjoy sunny skies while relaxing on sweeping white sandy beaches… Soak up the rays in a world-class resort." RBC Insurance's 'California Dreamin' conference was held at a resort near San Diego.

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