In its latest move to address churning, the Financial Services Council (FSC) has proposed a restriction on upfront commissions payable on replacement business.
Announced by Pauline Blight-Johnston, Managing Director of RGA Reinsurance, at the commencement of today’s 2012 FSC Life Insurance Conference, the proposal will be the subject of a three-month industry consultation period, commencing today.
The policy states that advisers moving existing clients from one insurer to another within a five-year period will only be eligible for level commission. The policy is intended to ensure that upfront commission is only paid once during this period.
Practices that are not in the best interest of clients are not in the best interest of the industry
“Practices that are not in the best interest of clients are not in the best interest of the industry,” Ms Blight-Johnston said. “Churn is one such practice.”
Accompanying today’s announcement, the FSC has issued a classification of churning, which it defines as:
‘Replacement business which occurs where an adviser makes arrangements for a client to replace an existing individual life, lump sum benefit or income protection policy with a new policy of the same kind within five years from the commencement date of the original policy.’
This latest proposal builds on measures announced by the Council in August 2011. The FSC’s key churning policy components are:
- The restriction on remuneration for replacement business, where only level commission will be available to the adviser from the insurer
- The removal of takeover terms for a policy or group of policies that are transferred by an adviser between insurers
- The establishment of a consistent adviser responsibility period across the industry of two years, with 100% commission clawback if the policy lapses with an insurer within one year, and 50% commission clawback if the policy lapses with an insurer during the second year
The intention of the three-month consultation period is to generate an opportunity for broad-based industry discussion on all elements of the FSC’s churning policy. The FSC has targeted 1 July 2013 as the implementation date for its churning framework, to coincide with the commencement of the Future of Financial Advice reform measures.
“We recognise that only a small proportion of financial advisers churn life insurance policies, however we believe it is a serious issue which is significant enough to warrant industry action,” said John Brogden, FSC CEO.
“Addressing the practice of churn is in the interest of consumers, supports financial advice as a profession and facilitates a sustainable life insurance industry in Australia.”
Mr Brogden added that a key element of the policy was that it does not prevent advisers from being remunerated for replacing business.
“These measures are not intended to limit or prohibit alternative payment structures that may exist for retail life insurance advice including fee-for-service models,” he said.
So the churners move to fee for service and it becomes business as usual for them?
I think John Brogden should stop crawling to Bill Shorten, the Insurance companies know who the churners are, let them get tough and ban these guys.
My understanding is that there is supposed to be a reasonable basis for the advice as outlined in the SOA. How are these financial planners allowed to churn if they do not have a reasonable basis for doing so? And if they do have a reasonable basis, it is then in the best interest of the client and therefore not churning?
All good and well except this gives licience to the current insurer to charge over the top premuim increases , give bad service and claims management etc. Competition will sort out most things in a free market economy. By the way are we still working in a free market economy?
So if an adviser in the process of doing a regular review finds a product that is more appropriate to the client’s needs then there is minimal compensation for a job well done. Given the speed at which insurance companies are coming up with improvements and better policies this policy would be penalising those advisers that review their clients and improve their situation. And as James says, it will give the insurance companies licence to behave poorly
Yet another “knee jerk” reaction
Is it not in the clients best interest to have the best value policy avail;able? regardless of when that policy may be issued by the insurance company.
The SOA SHOULD FULLY COVER THE REASON TO CHANGE CLIENTS FROM ONE COMPANY TO ANOTHER if it is in their best interests
Further to this given that John Brogden states that only a small proportion of advisers do this, why is it necessary to take the big stick approach and penalise all advisers
More control and more restrictions on advisers, WHEN IS IT GOING TO END? 50% clawback if a policy lapses in the second year. With the advent of direct insurers, we have more and more competition every year, so if the client cancels the policy, we get hammered?
When is this control and restrictions on our business going to end? As Damien has stated, the insurance companies know who the churners are; let them handle it. The answer is not in introducing further restrictions.
The “classification” raises more questions than answers. Will “… a new policy of the same kind…” include a change in sum insured, an additional ancillary benefit, a far superior definition which will be in the clients best interest but not the existing insurers?
As with everything the FSC comes up with this fails to address the real problem. Churning should be banned. So it’s OK to churn every five years? Damian is right, the Life offices should and would know who the churners are; if you want to fix the problem get rid of them.
The FSC’s definition of churning is also vague and incorrect. “A new policy of the same kind within five years” – by that definition, replacing a policy with no reasonable basis after five years is not churning? Rubbish. We do not need new legislation to outlaw churning. We need to police the current enforcement provisions – called reasonable basis, and the omission of these two words from the FSC’s definition of churning shows to me they just don’t get it.
Interesting that the industry sees level commission as a penalty and deterent. It wasn’t that long ago they were telling us it was in our best interests to write that way… I’m all for churning restrictions as long as it doesn’t effect a replacement where it can be clearly identified as being in the client’s best interest. This change would mean the shonk (or direct sales pipeline) that gave bad initial advice gets fully paid (& an extra level of protection because other advisers may shy away from going through the onerous replacement process if they can’t be adequately remunerated) while the adviser who cleans up the mess and is genuinely looking after the client gets penalised. Great thinking. Not.
The overwhelming response to these proposed changes seems to be in disagreeance! This is an opportunity to voice our opinion to the FSC(even though they seem to have made up their minds already!!)
Why propose the changes and then consult the industry?? Why not consult the industry first?? – What a joke!!!
The only winners will be insurers once again.
Advisers should refuse to write business with any insurer sitting on the FSC if these proposals are applied. (without distribution they will become nothing)
Hasnt our industry suffered enough???
Unfortunately a few unethical advisers have forced this action. Low education standards and barriers to entry are largely to blame.This proposal is of course “the thin edge of the wedge”.
We will soon see level commission legislated then it too will disappear in favour of fee for service.
This is CRAZY
Only yesterday I replaced policies in the best interest of FOUR Clients
The Bank planner did a shocking job in a Buy /Sell and personal plan and only protected the bank last December
This penalises the INSURANCE PROFESSIONAL as I was able to obtain policies for thousands less in premium, more cover with better terms and conditions that appropriately protect the business and the ownership of the policies is now correct.
Please ask these fools who would not know a professional if they fell over one to come and meet with me and I will prove them wrong. They are dreaming if they think this will fix the real issues in Life Insurance.
READY TO RETIRE if this rubbish proceeds.
Mr Patterson makes a very good point. There aren’t a lot of them, but most of the so-called big hitters who move business on a regular basis ( often when they move dealerships ) don’t appear to be subjected to the same standard of compliance that the normal advisers are. The SOAs I have sighted are totally meaningless, and there has always been a rumour that the dealers provde para-planners to do all SOAs at a reduced cost. That can’t be true, can it?
Truth is, the dealer, particularly those owned by an insurer, take a “commercial” view and turn a blind eye to poorly justified reasons in SOAs for a replacement of business. In other words, compliance for these big hitting churners is something somebody else can worry about.
Whether the proposed best interests test will clear any of these practices is debateable- as usual with these measures, the good advisers pay a price for the efforts to police a small amount of duds
REMEMBER THESE PEOPLE ARE CHURNING THIER OWN EXISTING CLIENTS
The FSCs proposals once again prove this industry is full of conflicts between the sales side, the compliance side and the claims side of our business. Mostly, production is king, but there are occasional cleanouts by insurers and dealers. Some insurers have recently, unofficially, black-listed producers who they know have a high lapse rate with them, but I will bet no questions were asked when those advisers promised loads of production first up.
The insurers know who the villians are and they are probably less then 1% of advisers. But those insurers will always go looking for business growth and are prepared to offer incentives to get it.
Some years ago I quizzed a reinsurer as to why on earth they allowed takeover terms to be offered by insurers with full commission being paid to different INSURERS every 2-3 years if the sum insured remained above treaty levels, without re-underwriting the business. I did not get an answer to my question but the re-insurers must be winning from the practice. There is obviously a lot of profit in life insurance for insurers and re-insurers alike, and they have just decided they want more !!!
Now Brogden seems to be saying that takeover terms are taboo without any real justification.
Today’s announcement is a double banger because it actually has two prongs for advisers. Firstly, there is the application of level commission if the business ( ON AN EXISTING CLIENT )is moved from one insurer to another within 5 years of policy start date of the first insurer.
How can that be for the consumer if the replacement policy does not contain the exclusions and loadings of the original policy. What if the clients wants a product feature NOT AVAILABLE from the current insurer. ALL DONE IN THE BEST INTERESTS OF THE CLIENT.
The second is the more onerous component and that is the extension of the responsibility period out to 2 years, with 100% clawback in the first year and 50% in the second.
Why do we need the claw-back provision in addition to the 5 year ban? You could argue the 5 year ban attacks advisers who consistently churn THEIR CLIENT BASE but the claw-back provisions and responsibility provisions ATTACK ALL ADVISERS and take away any protection the adviser has now with a one year responsibility where a client, for all sorts of personal and business reasons ( including unemployment and business failure) cannot pay the premium.
AND THERE IS NO PROTECTION WHEN ANOTHER ADVISER ATTACKS YOUR CLIENT BASE. Under Brogdens definition, the attacking adviser will be exempt from the 5 year rule.
Most of us would agree that policies that lapse for these sorts of reasons occur in the second year and in the bad old days of 2 year responsibility periods most advisers insisted on the first years premium upfront to give them some protection.
I suspect most of us, if we continue to take commission, will be very careful to only write business for clients who we believe will last for 2 years.
Some risk advisers may choose to take fees upfront, and let the insurer bear the loss if the policy lapses.
With no commission in responsibility, if the policy does lapse, adviser “care factor” will be greatly reduced, if not zero. I wonder if the FSC has thought this one right through – which adviser is going to chase an outstanding premium on behalf of an insurer if their remuneration was received upfront in the form of fees.Insurers will have to do the follow-up, increasing their costs and ultimately increasing premiums to consumers. Fantastic !!
The facts are that the claw-back provisions in this proposal are only there to help the insurance company recover costs, they are not needed if the purpose is to stop churning per se.
Dont forget, this is the same life insurance industry that offers totally un-realistic “dial-down” on life risk commissions, the average being 20% saving to the client for nil comm to the adviser..
This is a baby and bathwater exercise for a very small problem in our industry. Brogden’s claim that the measures are in the interests of consumers is the usual political clap-trap where an advantage to someone is disguised as being in the interests of consumers – motherhood stuff.
As to these measures supporting financial advice as a profession we should remember that Brogden also represents those companies who are selling life insurance products full of holes at a high price direct to insurers via TV ads WITHOUT ADVICE. How can that be professional? How can that rort be allowed to continue?
What happens to the direct sellers when they effectively ( yes, I know its so called ” no advice “)replace existing business by offering some dope a saving on their existing cover.
Hypocracy is still abounding !
Would love to see Pauline Blight – Johnston and John Brogden out there in the real world of living on commission and not sitting behind a desk comfortable in the knowledge that they will be paid next week.
As the greedy Insurers ramp up there Direct Marketing of Risk products in the coming years we will all be under threat of write backs with a 2 year responsibility period.
As a BDM said to me once and I quote ” when the business leaves us it is a CHURN but when it comes to us from another insurer it is QUALITY NEW BUSINESS”
What a bunch of a—holes.
Are these people for real? first of all if I give advice and the client is not disadvantaged at all what is the problem? this chruning thing has to stop. If the adviser is doing it every year I agree, however if a mum and dad cant pay a fee for service why am I not entitled to my fee?
The industry is saying Im not entitled to get paid for my full advice or my time you keep eating into it.
Dont you have something better to do? Ms Blight-Johnston Ill ask now who the re-insurer is with my retail insures and make sure her company is not getting my clients business.
This country has bigger issues to deal with than dealing with the oldest and hardest commision industry to work in, Sure if you want to be a bank employee then it does not matter leave my income alone.
It makes no difference to the client if (It should not) We move from company to another the amount of commission paid is not a factor int the recommendation and the reason for moving.
Get lost you people who cant make a dollar being self employed or those who object to a commission based income, you try it and see how long you last gurantee you cant do it
Again this is a case of the Manufacturers pushing the risk down to the Adviser, what if the client moves or cancels due to poor service for thr product supplier?, or form not being paid a claim? why should the adviser cop the 50% clawback in the second year, this should be conditional on the reason the client changes, if because of advice then no problem but what if they change for their owen reasons ?
What a contradction in terms! So on one hand, we have this comment “Practices that are not in the best interest of clients are not in the best interest of the industry,…“Churn is one such practice.” In this incredibly tough economic climate, where utilities and petrol alone are crippling families, who would want to pay more for their insurance than they have too? Do you Ms Blight Johnston? If you were paying more for your insurance than you should be – would you simply allow it to continue? My clients already employ my services to look after THEIR BEST INTERESTS. Allowing them to continue paying inflated premiums for lower quality cover than what progressive life offices are developing – would be a gross failure on my behalf. Let the industry self regulate this – the life offices know who the unscrupulous advisers are out there that ‘churn’ – black ban’em so they can’t practice their ‘craft’ anymore and leave us advisers with integrity alone!
Brogden & Blight-Johnstones of this world are pandering to a self & union funds serving minister & alleging it is “best interest” of the client. Surely if a client is able to save alot of money then it is in their best interest. Furthermore if a product enhancement surpasses what is currently on offer in the market it is OUR job to protect the client as best we can by offering best product! THATS clients “best interest” Brogden!And how is punishing ALL advisers for the actions a few a fair and reasonable outcome? And now you want the poor adviser needs to suffer a TWO year claw-back?? How does that help anyone other than insurance companies? This socialist Govt & self-serving industry “experts” are out to destroy the independent advisers business viability.
This issue should be dealt with by the various insurance companies directly with “churning” advisers and leave the rest of us alone! It has NOTHING to do with client “best interest” only insurance company (banks)”best profit”!
Let’s not forget, insurers are commercial businesses. When we change policies within the first 3 years (or so), it can’t be very profitable where upfront comms have been paid. I agree that it is not necessarily ‘churning’ but it is a problem that ought to be solved.
I am proud to read the comments above. These comments are made by people who work hard, have studied and been accredited and more importantly are being AUDITED regularly.
If anyone churns, their auditor should find them out. It is only since the start of the GFC that the politicians have become experts in insurance and finance. If that were correct, why are Australians still under-insured and why is the Future Fund only making 4% p.a.?
I agree with Damian and believe it is the insurers who should stop advisers doing this. They know the people who are doing it and by letting them get away with it they are harming all of us who do the right thing for our clients and harming the industry itself.
If they know of an adviser constantly churning then they should ban them from putting business with the company, eventually they will have nowhere to place business if all companies took the same stance.
I also find it funny how the insurers themselves never come out and back us up when our integrity as advisers is always being questioned.
The way things are going the underinsurance gap is going to turn into a canyon.
The FSC proposal to ban upfront commissions based on their classification of churning is unclear; i.e. “a new policy of the same kind?”
How does the FSC determine “same kind” for Income Protection where a person has a 2 year benefit period 90 day waiting period, basic cover, no indexation and the analysis the adviser has come up with after reviewing the clients circumstances including finances, budgeting etc, is to recommend cover to age 65, 30 day waiting period, advanced cover with extra benefits included, indexation; the reason being, the client would run out of savings after 4 weeks and if the illness or injury was long term, being paid for 2 years versus 35 years (client aged 30) would mean financial disaster for the client.
The FSG announcement in August 2011 which is used to build on measures stated today, also is vague and appears to not benefit the client or the adviser who is mandated to act in the best interest of the client i.e.
Point one, if the adviser fails the ‘best interest’ requirement, then the old policy should not be replaced as an inferior policy is a true churn though could occur because the client has said the premium is too expensive and they want a cheaper policy.
The second point: is detrimental to clients as being able to transfer without onerous medical requirements to a better policy is in the best interests of clients.
Industry Super Funds have automatic acceptance for Insurance cover and will take huge market share from the retail and Group Insurance Companies if it is too hard for clients to take up alternative cover.
The third point is simplistic; i.e. 100% write back if Business lapses in 1 year 50% in 2 years.
If advising and writing Insurance was less time consuming, (the huge amount of work required to advise and provide Insurance which can take months to complete) then the “cost risk” to advisers would be lower and extending the writeback period could be justified, though this is not happening currently.
It is just not about writing up a policy, it is about having to divert resources and time to administer and answer client queries when they receive confusing notices, renewals etc.
It benefits no one if a policy lapses within two years and by forcing extended write back periods, puts even more pressure on advisers who cannot be blamed if a client cancels due to financial difficulty, brought on by a myriad of events that have nothing to do with the adviser.
If an adviser is a habitual re-writer after 1-2 years, then penalise that adviser, not the majority who do the right thing.
John Brogden states only a small proportion of advisers churn, which means there are other reasons why Business lapses. The Insurance Industry needs to take a closer look at these reasons before coming up with a simplistic solution that does not have merit.
It is ironic, that Advisors having been frequently at the underwrting mercy of Reinsurers for so long, are now being dictated to by an organisation headed by a CEO of such a company on how to run our businesses…typical!!! Yes, those of us who are legitimately trying to do the right thing by our clients are now expected to roll over and meekly accept that we are unable to offer those same clients anything when they are offered lower rates by direct marketers, advisors who are indeed in for a quick killing and insurance companies as well!
I would suggest that Ms Blight-Johnston and her colleagues each take a year off from their ivory towers and get out at the coal face themselves and see how the real world operates of the advisor who actually helps pay their exorbitant salaries.
As if FOFA and the blind stupidity of Shorten and his mates are not enough to contend with, as advisors we now have to face “do-gooders” from within our own industry who it appears are equally as determined to undermine our credibility and our livelihoods!
If an adviser were to replace insurance policies that had been in place for say 2 years on behalf of a new client, rather than an existing client, then it would be assumed that upfront commission would be an available remuneration option to the adviser?
So, if one adviser placed new business 2 years prior to another adviser replacing that business and the client is deemed to be a new client of the second adviser,then upfront commission would be payable to the adviser replacing the business…correct ??
If a practice had 4-5 Risk Advisers, then theoretically a clients business could be replaced by another adviser within that same practice every couple of years and upfront commission would be paid to each new adviser, who has a “new client” ??
It is an interesting situation when product providers will do anything possible to upgrade and change product to achieve a market edge and advantage sometimes on a bi-annual and annual basis and promote these consumer benefits to advisers via research house ratings, only to respond adversly to advisers who may recommend beneficial change to clients via a thorough client review and product analysis process.
In a very strictly controlled world of know your client, know your product,client best interest,fiduciary duty and an enthusiastic legal profession, it is a ridiculous expectation and contradiction to control advisers remuneration models if it is clear the benefit of change is in the client’s best interest.The amount of adviser work in replacing an existing policy is no different to the placement of original and new insurance business.If the adviser can only be remunerated on a level commission basis, then it is assumed an additional fee will have to be charged to the client to cover the costs associated with providing that advice.
So, the client will pay the premium for the insurance cover at the same level they would pay whether it be based on an upfront or level commission basis, and in addition be requested to pay a direct adviser fee to ensure the adviser’s costs for providing that advice are met, thereby increasing the cost of the insurance to the consumer, over and above the standard cost of the premium.
Does anyone really think that increasing the cost to the consumer of obtaining insurance advice is a good thing ??
This is no different to asking a Pharmacist to only receive 30% of their normal remuneration on a replacement medication, if in fact a more suitable and appropriate medication is better for their client.
At the very least, the Hybrid model of remuneration should perhaps be considered, rather than the level commission model to ensure that the adviser is appropriately remunerated for the advice and the consumer does not pay more than is necessary for the advice.
I get the thrust, BUT not the execution. I think the hidden agenda here is to create a uniform level commission playing field. will it come about by the Life companies self regulating ? or will Government once again wield their big stick and decide what is fair and reasonable in a supposedly free market economy?
So if they want a level comm. environment, fine. legislate it , but stop this nonsense now. because the inference here is EVERYONE Churns, which is patently NOT the case, churners will likely stop if level comm. were across the board……..oh hang on what allied industry has level comm.? OH !……. I know F&G and what happens there? regular reviews and sometimes changes to the carrier and the sums insured.. or is that churning ?
If I want to buy a new car every year or two because of the improvements I simply do it.The car provider gets paid as does the salesman.It is my decision and that decision is not based on whether the salesman is getting paid again.Once again these proposed changes like many FOFA proposed changes assume the public are morons.
Absolutely ridiculous. How can this be better for the consumer. Why would an adviser recommend a product that is more cost effective (cheaper) to a client before 5 years. How can this be better for the consumer. Afterall, putting product qaulity aside, most clients move because of affordability. Don’t we all shop around for the best price of our weekly consumables, so why take this away from the consumer in the risk insurance market? Socialism is creeping in step by step. Hidden agendas must be exposed to protect us and the consumer.
Totally agree with the majority of comments below. 99% of advisers do act in the best interest of clients. Instead of weeding out the bad eggs, we all get penalised. The only winner here are the life companies. No wonder they were all on the churning band wagon.
mmmm, Asteron may want to reconsider it’s Thailand trip for advisers next week
Is there any proof at all churning exists? Bill Shorten has created this term out of thin air, and now trying to legislate it, and I am yet to see proof of churning at all?
Seems like another union fund, oops I mean Industry fund inspired attack on advisers!
I certainly hope the powers-that-be in making these erroneous decisions re industry churning are reading these comments. There are some profound comments here and, personally, I do believe the insurance companies should address these rogue advisers to help our image. But I fear they won’t. They theatrically will pay lip service. This interference by govt and FPA/FSC does little more than stress and take the adviser’s eye off the ball in helping clients. It is patently ridiculous for these geeks (with no time at the coalface!)to be making changes to our industry and operations and livelihoods in a self-serving and knee-jerk manner. Put potential fines on the life offices if they don’t see to churning immediately – that’ll fix (at least) churning overnight! Please! For me at age 51, an adviser who has helped clients for 27 years, it is becoming easier every day to make the decision of an early retirement – and I mean this year! This industry bickering is demeaning at worst and amateurish at best. It (retirement) would be a tragedy though as I love (what remains) of this industry. Unfortunately the pollies and (some) industry bodies (parasitic hangers-on) see our lifeblood and industry as their plaything to enrich their standing on the political spectrum. I can tell you – if it wasn’t for the tax break at age 60 on my super I’d be sorely tempted to packup and leave tomorrow. This idiocy and self interest of pollies probably won’t stop and neither will the inaction of our spineless life office management teams. They get their wage packets each week so why should they push – just as bad as the pollies! I’m truly sad to say I feel this way but after much (too much) reflection I am convinced of all this. Good luck to us all.
Here we go again!! Another bunch of idiots who need to get their head out of their backside and get out in the real world and smell the ‘fresh air’. How ridiculous are these people???? Just this week whilst doing a review for clients, who by the way wanted to talk to someone who could give ‘face to face advice’, they told me that friends of theirs had had life cover with a stand alone TPD and wanted to review it with their adviser. After consultation, the adviser told them to leave things as they were as the cover was ok and maybe look at other cover. After a period of a couple of weeks, the clients contacted the adviser to inform them that they had cancelled the cover on the advice of a Bank planner who had replaced the cover with life cover and linked TPD with NO double TPD cover. The fact that the original cover was cancelled BEFORE the other cover was put in place is criminal enough but to not understand the ‘stand alone’ and ‘double cover’ options – leaves me to wonder that if people like Brodgen & Blight-Johnston keep this up, the ‘best interest’ will disappear and the only option for people will be the TV Ad Life Companies providing inadequate cover with no needs analysis or proper ‘know your client’ processes and under-insured population. Oh what a mess to look forward to!!!!
A problem with level commission if vested interest groups lobby and the Government makes level commission mandatory, is two things will happen.
1) Any future reviews if replacing one Company with another and the premiums turn out to be similar or less, the current system requires many hours / weeks or months of work for nil additional income. This becomes a dilemma as the cost of running a Business always rises and if a choice of earning nil to fully review a existing client or earn commission to devote that valuable time to a new client, a conflict of interest could arise; that being the adviser should work for free, yet still be expected to pay staff wages and all the other bills, or try and be paid for the work.
If you get $500 a year to look after a clients Insurance needs and you spend 20 hours doing a full review and replace the old outdated Insurance for the same premium, you will get $500 a year, or in laymens terms, nil for 20 hours work and the associated costs to provide that service.
2) There is only one direction the percentage will go once level is the only option and that is down.
Look at every other industry and it is easy to see what will happen, though the difference with Insurance is, Insurance advise is not a fee for service Business and anyone who thinks otherwise is fooling themselves.
Therefore, saying I will charge my client hundreds or thousands of dollars for the extra work I have done, is like saying I believe our current Federal Government is doing a wonderful job.
The only way advisers can be remunerated for the onerous workload, is via a choice of commission structures that will be sufficient to pay the expenses and make a profit.
It is interesting to note that the FSC Life Board Committee is 100% made up of insurance companies and re-insurers. Call me cynical but I think they have done the numbers and believe that by screwing the advisers that they will all make more money due to less business being re-written or maybe they are planning a greater direct marketing campaign. The only problem with that their plan is that the clients will be worse off, as advisers will not be able to earn an appropriate level of income by improving a clients level of insurance cover or by providing better definitions with a different policy for the same premium or less, and therefore may choose not to get involved in sorting out any discrepancies they find. Sad state of affairs if it comes to this but my business is run as a business and I do not work for free or very reduced rates. I give to charity but I do not operate one. I agree with Arnold’s comment above as I have heard the same comment from Life Office BDM’s ” when the business leaves us it is a CHURN but when it comes to us from another insurer it is QUALITY NEW BUSINESS” What a joke this industry is becoming. Bill Shorten is not the only one telling porkies!! The only good news will be for the few risk advisers left in a few years that there will be probably be millions of orphan clients to service as everyone who has had enough of this ongoing crap, retires or changes careers.
Great comments !
I am currently trying to replace a few policies for a client who was granted loaded rates with a suicidee exclusion and other mental health restrictions.
So, if the new system was in place, this would be considered churning ? I don’t know if I will be successful with my attempts for this customer because the initial undewriters, the insurer and reinsurers have put a big stumbling block in the road. But I will keep trying to assist my clients. If I don’t succeed I wíll not be paid anyway. Does Brogden think I am wasting my clients money ?
Maybe some government body will pay our fees instead of setting up body with a massive cost to the tax payers?
We are doing the work but its the government employees who are being rewarded.
I apologize-this is my second crack.
This week we launced into the FPA for doing a deal with the ISN over opt-in. The FPA denies it
Maybe the FPA is telling the truth, because maybe, just maybe, Brogden and some our friends the insurers are dealing with the ISN, and this ridiculous and not-well-thought-out anti-churning proposal is the quid pro-quo.
What a plan-offer up heads on a plate re churning, in return for the ISN going soft on opt-in. Maybe our friends the fund managers/insurers have discovered that OPT-IN WILL ALSO COST THEM MONEY
Mr Sobels- pls ask Brogden a direct question – is he talking to ISN
WHAT A SUPRISE ANOTHER PUBLIC SERVANT MAKING RULES FOR US.
When it comes to churning I heard recently that the BYER OF of A LARGE DEALERSHIP has created the largest deliberate churn to come yet .All the AQUIRED advisors had business with XY AND AS RUMOUR would have it ABC wants that business.
So bad, the story goes and i say all this with out predudice in the defense of those ADVISORS CAUGHT in the middle that XY WAS CANCELLED FROM THE AQUIREDS ANNUAL CONFERENCE.
In the past there has allways been twisting. In my earlier days if it was one of the big mutuals agent it got swept under the counter or it was good for the client,If it was one of the MANY small companies that existed then they came after us with as much as they could throw. Now the boot is on the other foot and they are feeling it and I for one am glad. I have interpreted the best interest of the client as spreading to the quality of the product. example. I have a client with an old income and buss. xpense 1995 product. semi professional.The life co. tells me it is agreed value I have no proof in the file of that and they claim to have lost the original application, it is also listed in the schedule as a life time contract in the schedule. Not in the application but in the policy doc. is automatic indexing and increaseing claim,older style one duty
definition.There are a lot of modern products that are better than this, for less money.Where does my responsibillity lay? If I dont bring him up to date some one else will, What do they call it then?
BIT HARD TO UNDERSTAND, BUT i HAVE ALL WAYS SAID WE ARE THE PURVEYORS OF PRODUCT THE INDUSTRY DESIGNS IT AND TELLS US WHAT TO DO WITH IT.tHERE HAS ALLWAYS BEEN BDM’S THAT WOULD TAKE THE WORST GUY’S ON IN THE HOPE OF GETTING A GOOD YEAR BEFORE THE SHIT HIT THE FAN AND THEN THEY ARE BOTH GONE! It has allways been the product designers that caused most bad practice ,what about the large mutual that ran a competition between corporate super and personal super boy was that abused.Regular premium super cotracts sold as bonds and accepted by the internal people,Dont get me started.
All these knowelgeblys put together a set of rule doc.s etc to controll this industry .We are the only one’s that can controll it dob them in to ASIC MAKE EM LISTEN, i HAVE TRIED IT WITH LOCAL MANAGERS IN THE PAST THEY COULDN’T CAN LESS, SO FOR ME IT IS THE LAW FROM NOW ON. i AM GOING TO SEE EVERY CLIENT THAT CANCELLS AND FIND OUT WHY AND i WILL MAKE THE P—-KS LIFE MISERABLE.
Advisers in Australia are being once again blamed for the woes of the financial services world. In a press announcement the Financial Services Council issued guidelines for replacement business designed to minimised Churn.
To quote Mr John Brogden, CEO of the FSC “We recognise that only a small proportion of financial advisers churn life insurance policies, however we believe it is a serious issue which is significant enough to warrant industry action,” said John Brogden, FSC CEO. “Addressing the practice of churn is in the interest of consumers, supports financial advice as a profession and facilitates a sustainable life insurance industry in Australia.” Mr Brogden added that a key element of the policy was that it does not prevent advisers from being remunerated for replacing business.
Nowhere has the FSC displayed any meaningful statistics and by their own admission it is a small proportion of financial advisers at fault. We ask “How small a proportion”? If the issue is serious and significant enough to warrant industry action that affects every Risk Writer in Australia, then surely we should be entitled to the respect of being granted access to meaningful statistics. Mr Brogden’s statement that the policy does not prevent advisers from being remunerated for replacing business just shows how out of touch with work flows and effort required the FSC is.
We have a 3 month consultation period. Synchron intends writing to every Life Insurance Company and ask them what their policy on the FSC Guidelines will be and informing Synchron advisers accordingly.
Once again we are being done over by the high end self interest groups. Don Trapnell from Synchron is right in calling this self interested group out, are your dealer groups? If not, why not?
Can someone tell me how moving a client into a better policy is churning? I specialise in insuring Miners and 3 years ago you had very limited options. Now I can get my clients cover to age 65 in IP. SO TELL ME HOW IS MOVING A CLIENT FROM A 2 BENEFIT over to an age 65 Churning, if I have to move insurers to do it? What about best interest for my client, isn’t that what FOFA was meant to achieve? I would have thought as a professional I was looking after my client, but no if you believe these idiots I must be a churner.
It is time every adviser asked the insurers they do business with who is their re-insurer and ask them to support their claims with real statistics that churning is a major problem, as Synchron plans to do. pblightjohnston@rgare.com
is Paulines email and I think it is time to ask away!
So many valid comments above.
Genuine cancellations due to insufficient funds or the clients business closing down, claims paid out for Trauma or TPD, or death of the client all lead to a policy or all policies being cancelled.
I hope these lapse rates have not been classed as churn numbers for the life insurance industry.
The life companies need to regulate this issue. They should do a search on their system to see if the SAME adviser has sent an application to them previously for the SAME client.
At least then they can see the date of the initial application, the date the original policy cancelled, and the date it is back in the queue for being assessed again!
The life companies should black list these advisers as they can see who they are!!
This proposal is crazy, why disadvantage the advisers who are doing the right thing and reviewing policies and market premiums within a 5 year period.
And why disadvantage the client from requesting to their adviser to shop around and see if you can get them into a better product etc
This announcement is worrying, not just for a risk adviser, but for the life companies (BDM’s, underwriters) and dealer groups.
Imagine in a few years where there is a large parcel of in-force existing policies that have an in-built commission of level 30%.
Then within the 5 year period, other life companies have better product enhancements, medical definitions, cheaper premiums.
Alot changes over 5 years.
As an adviser we can do the meeting, research, quotes, produce the statement of advice, another meeting, (if the client decides to proceed), assist to complete the 40 page application, photocopy, send in the post, oversee the underwriting requirements, complete and print out the quotes, book in the blood test and medical, chase completion of the medical report with the Dr or Drs if they have multiple medical conditions, speak to and obtain the financials and tax returns from the accountant, submit and speak to the underwriter, remind client of fasting blood test, keep the client updated, speak to underwriter to try and finalise the application.
Who is going to do all this work if they would be paid 30% from the new life company.
Plus there is the risk of people’s health and declined applications, premium loadings and policy exclusions which mean the client does not proceed.
Mortgage brokers aren’t churning their books are they?
And ‘if’ they were, surely more Australians hold retail life insurance policies than those that have mortgages? No, you say…? More mortgages than Life policies?
So why all the attention on our profession and the practices within? AGAIN.
And why did my mortgage broker contact me last year offering to charge no fees to change to another bank with better rates???
Was it because he was getting paid another upfront commission or because the current lender wouldn’t renew my contract to better reflect the changes in market conditions and my own personal circumstances??? Their hands are tied…? Really???
Dear Mr Policy Maker. Please rethink the direction of your attention.
I can see that there may be a case to remove takeover terms, (a process implemented by insurers to encourage advisors to move business from other insurers). I can see that there may be a case to eliminate up front commission too – which would make new entrants into the industry think twice about having their own busienss.
However, I just wonder how business can alter their model to claw back all the expenses they have to run their business… some insurers already have 1 year 100% write back, and sometimes clients have unforseen financial situations so they cannot pay premiums, (floods – cyclones – droughts – fires – death !!)… and we live with this now. We also live with the fact that some cases we spend days on cannot be placed, medically, finanically etc… comes with the underwriting process.
BUT how does a business also factor in repaying commission for 2 years…. this is absurd. Who else will recive income for advice or work performed and then have exposure to return it for a 2 year period! How does one plan for this eventuality?? So much for encouraging new entrants into the risk field to reduce the underinsurance problem in this country! If you really want to address this “promlem” then just bring in a flat rate of 40% Level comm, and then most will join industry funds and independant advisors can concentrate on the higher end of the market and businesses without guilt. I guess its comforting to know the other option is that we can all work for an industry super businesses for $60k per annum without any risks.
The FSC proposes level brokerage only if any client changes insurers within 5 years. This is a joke and a deterrent in advice for the client in this timeframe. It is the insurers who are the problem not the advisers. The last time I looked insurers were not forced to accept business from any adviser (they already know the few bad ones anyway) and the majority are doing the right thing by their clients so it is laughable that your organisation finds it far easier to lay blame with the adviser. That means the FSC are red tape men of the highest order working for the insurers with the worst lapse rates. The solution is simple for those insurers who still wish to participate in offering clients market leading risk products and solutions with well priced premiums…all they need to do is offer advisers a fee for service equal to the first years premium.
Brogden won’t like this but who cares as he has a polly pension to worry about!
Well done. An under insured, over spending, high debt per captia country like Australia, and we have imbecilic morons in and out of government wanting to wipe out the last bastion of individuals, who actually do care about the fact that as Australians, living in a capitalistic society that we have debt, from mortgages,credit cards,cars, bikes, planes, No trains, with a spouse & 2.1 children & DO NOT have, or DO NOT have enough insurance to protect these debts. I was raised to believe that if you die your debts should die with you. Your burden should not be someone elses. Life Insurance, Income protection & Trauma Insurance provides that protection, to indivduals, family’s, company’s to clear or cover that debt. As a specialist Risk Adviser, IS IT my fault that a Life Insurance company, to acquire it’s share of the market, enhances it’s products & premium cost’s to attract advisers to sell that particular product for them. Is it my fault that they offer me an option of UPFRONT or LEVEL commission terms, with a 12 month responsibility period. I too have a family, mortgage, credit cards & other debt. Yes I am a capitalist & proud of it.
My duty of care as a Risk Adviser, is to insure that I am offering the best possible product & cost base to my client, based on his/her needs, ability to fund the premium and availability to obtain insurance, based on their health, age, occupation & pursuits. If as an Adviser I am required to annually review their circumstances, as a duty of care & repsonsibility, if a better product, based on cost, benefits & cover is available for that client to acquire, it is my duty to make my client aware of this product & offer it to him or her to consider.
Whether this be after one year, three or five years.
If I DO NOT do this, then I am perceived as not acting in my client’s best interest, yet in the eye’s of many, I am considered a “CHURNER”.
Call me what you like, I have no issues in handing out, or being involved in a widow receiving a $1,000,000 cheque to clear her mortgage, feed her children & have the ability to stay at home and provide her children with the best possible care. That’s a great feeling to know, that I was responsible for that.
This capitalistic “”CHURNER” will continue to do what he does best, provide protection where it is needed until this Communist Labour Governemnt implements a Universal Insurance scheme, which they won’t because that will upset the Union & Industry based Super Funds, and their money grabbing share of the market, for their cronies to get their kick-backs from.
As a “so called” non caring Capitalistic Churner,I quote the words of William Wallace, “FREEDOM”, but add the word “of CHOICE”
What a load of rubbish, Did you think of this all on your own,
example of why IT WONT WORK…
i sold a trauma and IP policy thru ABC insurer to Mr Shortensighten , 2yrs 6 mths later we review, he’s just discovered that a close relative has a rare hereditary mental disorder, not covered by existing insurance policies, however XYZ company has made bit of a feature of this hereditary complaint, I knew this and informed him in writting ( due dil etc )and due to it being hereditary and not in his current policy i recommended he apply for replacement cover with the new underwritters ! Prehaps to stop churning insurance compainies should ask for a copy of the section from the SOA re replacements policies etc. or just as another thought prehaps all insurances should ONLy be sold as Level premium or in 5 year band’s , they used to be available like that years ago, and clients and decent advisers liked it , and guess what the churners did’nt.
Accountability around compliance is surely the best solution. Financial planners have not created and are therefore not responsible for the significant differences bewtween insurances of a similar type.
Truama and IP policies especially can have significant differences which would significantly impact clients in the instance of an insurable event occuring. Perhaps the difference between a payout, a partial payout or none at all.
If a planner professionally identifies differences of significance and provides advice to a client that would reflect the advice that he would give to himself, are the regulatory bodies really saying that this is a bad thing.
What is fundamentally being missed here is the difference between what is good financial planning practice and churning. One being ethically and morally right and the other completely not.
Not dealing with the problem of churning by introducing a system that ignores what is good financial planning practice, is no good solution at all.
How would the clients benefit from such an approach? Planners that can identify that a clients interests would be better served by a more comprehensive trauma policy for example which costs $$$$$$$$$$$ cheaper for the same sum assured, but realising that he/she would be financially disadvantaged for providing such appropriate advice to the client?
Compliance and accountability – its not rocket science guys!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Firstly I would be happy to do away with takeover terms as I don’t believe that they are in anyones interest except of course the life offices who promote them to increase new business flows.
How can the “Clients best interests” be served by placing restrictions on the timing of recommendations that advisers can make to their clients.
Replacement business is acting in the clients best interests when executed in an appropriate manner by a professional adviser.
At all times the adviser must be able to justify (legitimise) the basis of the recommendations made and this should be appropriately documented in the SOA.
Replacement business is about putting the client in a better net position after the event than before.
Based on John Brogden’s (FSC)recommendations if product enhancements mean that a client would have a far better prospect of achieving a positive claims outcome, we would be restricted from putting the client into that better position because of the proposed 2 year retention period and the payment on level commission. Does John Brogden understand that in some circumstances only level commission is payable on replacement business. Does John understand that many years ago the Industry moved away from a 2 year retention period. If we were to move to a 2 year retention period are we going to be finacially compensated for this significant change?
My suggestion would be that it’s up to the individual Life Offices as to whether they accept or decline business. They can ask for clarification (copy of SOA etc) to determine if the client’s best interests are being served.
Think long and hard about the impact of this type of change to the consumer.
Anti Twisting Conventions were outlawed in the early 1980’s because they restricted competition and contravened the Trade Practices Act. Churning (Twisting as we called it) is encouraged by the industry. Stop offering take over terms and insist on underwriting ALL new business and churning will subside. Get BDM’s and State Managers to start weeding out those who make a habit of replacing business for their own material reward. I am sick and tired of having to pay the penalty on behalf of greedy unscrupulous bastards in our industry. Get them out of the insurance company offices and out of the faces of our clients. This is an old problem but the scorn should not be applied to Advisers alone; the industry has encouraged it for 30 years now.
Dear Ms Blight – Johnston,
it is good to see that the Life Insurance industry is getting around to correcting the practise of ‘Churning’. The public has been aware of churning since the AMP Lifers special on the ABC corners program, in the early 2000’s. I note that you are at AMP, I trust that you will develop products that are in the best interest of the client, with low commission structures and clawback. The Matured Products outflow is at an all time record at AMP, matching the reinsurance payouts of RGA Australia. I trust that you are in business conservation mode. Kind regards, Adrian.
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