ClearView Wealth has challenged the financial services sector to produce valid statistics regarding the level of churning that exists within the life insurance industry. And it says it also wants to ensure that good “broking activity,” to enhance customer benefits and/or prices, should not be confused with churning.
Speaking from the point of view of financial advisers, ClearView Wealth’s Head Of Products And Underwriting, Clive Levinthal, called for an industry-wide audit, using consistent and agreed measurement criteria, to establish the actual level of churning that exists.
Mr Levinthal acknowledged that where churning does exist it must be dealt with, particularly as the financial advice industry continues to enhance its standards. However, Mr Levinthal pointed out that while there was much discussion about the issue of churning during 2011, there was no definitive study conducted that established the extent to which it is an issue in the first place.
… because there is no hard evidence or consistent reporting, the size of the issue, if any, remains unknown
“People are saying that churning is a big problem,” said Mr Levinthal, “… but are there any hard statistics that support this position?” Mr Levinthal contends that possibly isolated incidences of churning could be seen as evidence of a broader issue that may or may not exist, but because there is no hard evidence or consistent reporting, the size of the issue, if any, remains unknown.
“I have come across too many anecdotes and possibly even some myths”, he continued. “And the industry has improved a lot over the last decade because of FSR, so stories from the 90’s are no longer applicable”. Mr Levinthal also noted, “… the last thing we want is for uncompetitive insurers to hide behind the concept of churning to cover up high lapses caused by customers seeking product or price enhancements. And why are lapse rates in direct channels higher than where brokers are involved?”
Mr Levinthal’s comments follow a period of heightened debate on the topic of churning, including its mention in the Information Pack accompanying the April 2011 release of the Government’s Future of Financial Advice reform proposals, followed by input from various industry stakeholders including life companies, licensees, adviser representative associations and the Financial Services Council.
Yes churning still exists, it used to be called twisting. And yes I have seen a bank employed adviser churn another advisers client who’s licensee is owned by the same bank!! He/she, churned the advisers client on the basis that the bank adviser could do the same for cheaper. What is not known is if the bank adviser disclosed all financial gain/reward he/she received to the client. AKA bonuses etc.
Churning, a review of clients needs a change in definitions requires moving from one company to another, Chruning should be outlawed if the move from one compnay to another disadvantaged the client, so not just premium but as an entire policy if its the same but more cost effective then go for it, if its cheaper at the clients request then the SOA should reflect that. Ive seen a CFP move a client from a full non can policy with no exclusions to a AFA policy the CFP should be banned as the AFA policy excludes any prior ailments. Churning is not the problem its the adviser that needs the money to spend at the Casino that is.
If this is part of FoFA reforms it’s not surprise that it’s in the news now. The government seems to be trying to squeeze the life out of independent advisers while taking a fatherly concern in the doings of the industry super funds.
The government can’t have it both ways: either they want the adviser to act in the best interests of the client or they don’t. If best interest means replacing a policy because one offers better value for money than an existing one, when does it in their view, cross the line and become churning?
Recently I have been swapping some term policies of older clients to another insurer with cheaper premiums. The new policies have level commissions. This move has meant a saving for clients, but it’s been break even or short term loss for me because we don’t charge a fee. If this is churning then I plead guilty. Most of our risk business has been written with hybrid commission with a view to the clients keeping their policies for the long term, but every so often we recommend a switch to another policy because the client will be better off. This is documented in the SoA. Again, if this is churning, then I plead guilty.
what is Churning ?Is a review and replacement process churning if it occurs within the 7 year breakeven point for the life office on profitability ? or is it the mindless slaughter of existing policies for the pure commission reward? I think it still exists BUT I am NOT convinced it is as widespread as some might think…. at least not so much in the IFA market. Banks are putting extreme pressure (anecdotal evidence ) on planners and I suspect to meet budgets there is more in that area of the advice market than outside. in any event a slow but systematic phase in of say a level comission framework (the same across all companies) could conceivly fix this, however the cynic in me would suggest that other not so obvious incentives might come into play…who knows
Clearview are one of the few Companies to ask what is churning and how exactly do you determine if churning has occured.
If the adviser has acted in the best interest of the client,which has led to a better policy that matches the clients needs, then this could not be construed as churning, It is called professional advise.
Churning is where advisers sell cheaper policies that do not improve a clients policy definitions or insurance needs, rather it is to be cheaper to get extra commission or to reach targets set by the employer, with little regard for the client.
In order to guage if churning is a problem,
you first have to determine what the criteria is.
Let’s focus on the institutions for a change. If they (Life company) win business off another company they say the adviser is looking after the insured and is a good adviser. When they lose business to another company they say the adviser is churning. If a company cannot maintain its competitive position it doesn’t deserve to havea consumer blindly stay with them. If we had level commissions across the baord and get riud of upfront commissions, this wouldn’t even be getting the airplay it’s getting. Time for the institutions to come clean about their own practices behind the scene. Well said Clive. Good luck to Clearview show up some old school Life companies for their dinosaur practices.
Comments are closed.