The Financial Services Council (FSC) has confirmed it will re-open discussions with the industry about a life insurance framework to address the issues of churn and sustainability, following pressure from the Government.
FSC CEO, John Brogden, told riskinfo the Council had received a letter from the Minister for Financial Services and Superannuation, Bill Shorten, indicating the Government expected the industry to ‘go back to the table’ on the issue of churning.
“The Minister and ASIC (Australian Securities and Investments Commission) have made it very clear to us that they expect us to go back to the table. The view of the members of the FSC is that we should continue to look at ways to deal with sustainability, and to that end there is a meeting this Friday [30 May] of the FSC Life Insurance Board Committee to look at sustainability,” Mr Brogden said.
… achieving a satisfactory outcome in this area is critical to enhancing advice to consumers in relation to insurance products
On the agenda for the Committee, according to Mr Brogden, will be the possibility of reconsidering the commission clawback model. He also said the group would be looking at solutions to address the broader life insurance industry sustainability issue, including considering the removal of stepped premiums.
riskinfo has obtained a copy of the Minister’s letter, dated 22 April 2013, in which Mr Shorten thanked the FSC for its efforts in trying to develop an “industry anti-churn standard”.
Mr Shorten also highlighted his preference for the industry to self-regulate in this area:
“While I recognise the difficulties associated with achieving consensus on this standard, I remain firmly of the view that achieving a satisfactory outcome in this area is critical to enhancing advice to consumers in relation to insurance products, particularly in the context of life insurance. I note that ASIC continues to consider excessive churn to be a genuine issue in this sector of the industry.”
Mr Brogden said he had also received a clear message from ASIC that it was looking at churning, and that he had recently met with Deputy Chairman, Peter Kell, to discuss the issue.
“He (Mr Kell) indicated they will be seeking information from the life industry on lapse rates. And he made it very clear that they will begin to undertake surveillance activities of advice businesses with respect to churn. So whilst the Government is not looking to legislate, it is clear that the regulator is looking to take action,” Mr Brogden said.
… whilst the Government is not looking to legislate, it is clear that the regulator is looking to take action
“We can sit still and be hit by the train of Government regulation and regulator surveillance, or we can lead and find a solution to these issues.”
riskinfo is awaiting confirmation from ASIC as to when it will undertake this surveillance, and to what extent it believes the problem of churning is widespread.
Association of Financial Advisers (AFA) President, Michael Nowak, told riskinfo that while the Association did not believe churning was a significant problem, the AFA was keen to be involved in the discussions.
“We would be very open to participating in the debate and development of a framework, but before any decisions can be made we do need to see the data,” Mr Nowak said.
“It’s obvious that this issue isn’t going to go away. It’s on advisers’ minds. And it’s clear that the industry needs some leadership on this issue, so we can try and reach a positive outcome for all parties.”
Churning: rewriting risk policies with different providers in order to score off upfront commissions. Result – lapse policy.
Change of ownership: changing ownership of policy to retail super, SMSF, business or personal. Processed as a cancel and reissue without further underwriting. Result new policy number and a lapse policy. With the same company.
Client missing payments: due to change of bank account / credit card, slip up on available funds etc Most cases resolved with the client once alerted. Result: record of a lapse policy.
POINT: All lapse reports from insurance companies capture all of this! Lapse rates are not a true reflection of churn at all. There is no accurate data to analyse.
John Mills is spot on. Unless there are exact definitions of churning, lapses, and cancellation of polices, we will have everything regarded as churning!
The insurance companies need to be accountable in how they report figures and REALLY see how bad the churning issue is
Polices do not last forever, and it appears that the insurers would like them to. The whole system needs review, not just change things to affect every person in the industry with the stroke of a pen and advisers paying the price because of dodgy advisers and dodgy reporting
Good point Jim. Also considered a lapse is when a client retires at say age 63 and no longer requires income protection and any client who does not maintain their life cover to age 99!!
Michael Nowak and the AFA are right on the money, lets be a part of the discussion, but we first must see the data. Unfortunately Life Offices have dropped the ball on technology, you only have to look at the data feeds for systems to see how inept the industry is.
Putting the data issues aside, the Cynic in me gets the feeling this might be the desperation of man grasping at straws as his ship is sinking, helps takes the focus of his political issues.
Unfortunately we have to participate because it is our industry under fire, again.
Here we go again, more rubbish on mass churning. And the poor old insurance companies have now idea about it or how is doing it ?? What a complete load of BS!!
Get real insurance companies, the BDMs job includes investigating lapse rates to determine if the adviser is churning. And specific advisers are then banned from upfront commissions. Until they move on to the next company and do it all again.
Insurance companies have the details, ability but not the desire to stop this easily.
This commission write back strategy would not be required or discussed if the insurance companies stamp out the bad apples themselves and leave the rest of the advisers alone to try to help advise and insure the significantly underinsured population.
1) insurance companies and ASIC please show us detailed data behind your churn issues. Come on silly Billy Shorten, where is the data?
2) insurance companies set up a register of advisers reprimanded for churn so other insurance companies can see who it is and if they start getting new business from a churner then they simply don’t allow upfront commissions.
Thus problem solved if it actually exists in as big a way as silly Billy thinks.
Well written, Silly Billy is Ethan’s being pressured by a major financial institution, perhaps even a financial contributor to his party, churners are banned by insurance companies or commission is reduced to level by the insurance company, I know the institution behind this they did it to the mortgage industry as well. Just last month I had a client referred to me, he required IP to simply fulfil his employment contract. He then cancelled it. Mr Kell Mr Brogdan get a life Shorty you’ll never be voted back into power enjoy your retirement.
If Insurance companies looked at all business that has been in force for 2 years and less than 5 that is cancelled they will get a very good idea of churn. An adviser will not move a case until it is out of writeback. Companies need to step up and not give agencies to advisers that are known to move their books of business around the market. Companies know who these people are. Advisers need to learn to compliment what has been sold previously and build on that product as opposed to just looking to replace.
The majority of advisers do a good job we need to get the churners out of the business.
When is the government going to leave our industry alone? It seems that the government is making it harder and harder for we risk advisers to make a living. Previous comments here have shown how so-called lapse rates are recorded. Churn is an element within those “figures”, but advisers routinely in prospecting for new business, run across prospects with life-risk policies which need upgrading.
If FOFA is looking for “best interest” and we recommend a client upgrades on one hand and face churn on the other, won’t that put us on the horns of a dilemma? And how will that scenario solve the underinsurance problem in our country? Oh dear, it’s truly mind-numbing.
Paul it’s not about best interest, it’s simply coming from idiots that have nothing better to do, So I saw my CPA the other day and asked for her opinion on making a large super contribution, she replied oh your to young to worry about super don’t worry about it. What is that ? So if an adviser disadvantages a client from replacement, and it is disclosed to the new underwriter it’s replacement business, then the ASIC should ban them for life, unlike what the ASIC did with Terry Franke who was banned and AMP let him back in, once banned that should be it AMP ASIC silly Billy. Last week I reported a company for fraud and the ASIC had decided not to investigate why? perhaps the ASIC like the former egg board thinks its new found powers allows it to destroy one of the oldest industries on the world yet prostitution goes on in our back yards, Corporate bully’s still exist and legal system is one of LAW nit justice
Seriously? This topic has already been talked to death in the last 12 months, the concensus was to maintain the current arrangements. Why won’t the powers that be listen? Life insurance pays out over $3bn every year in claims – based on $ per claim event other forms of compensation pale into insignificance by comparison – the current channels of advice and distribution of products which provide cover need to be worked with and protected – the ministers comments appear to illustrate a massive ‘blind spot’ in the governments view of this vitally important topic.
I agree Tim, talk about flogging a dead house. If they took the blinkers off they wouldn’t have this blind spot. Problem is we have a Government hell bent of riding this issue into the ground.
Agree with most of above. Paul is on the money. FOFA BEST INTEREST? Current reporting and record systems are S…! Damned if you do, damned if you don’t!
No stepped premiums a possibly ?
While personally a huge advocate for level insurance premiums and recommended in almost all instances, not all clients can afford the initial premium, not all clients need cover to 65/70. Can we not offer these clients cover?
What a ridiculous suggestion to an issue that is becoming increasingly better understood and managed by licencees and the insurers. Leave us alone Bill we are tired of Labors constant interruption with all these ideas that simply cost advisers time and money ( with no consumer benefit) in implementation and management.
Clearly we need a new government! A non communist one!
Let market forces rule- the insurance companies should get a bit smarter- reduce up-fronts to 60% & increase trails to 30%- churning will disappear!
PS. AIA are counting CLAIMS & 10 year old policy cancelations in persistency calculations-WTF
I would have thought Shorten has far more more on his plate than the non issue of “churning”. That is, will he even be there after 14th September and the answer is almost certainly NO!
This is becoming all a bit boring to we advisers who are doing the corect thing by the public. If there are some people allegedly churning it would be a minority so go get them, do not put us all in the same basket. Surely it’s not too hard to weed out the offenders rather than the usual lowest common denominator approach of penalising the entire cohort.
I have been advising on personal risk insurance for more than 20 years and in the last 10 years have seen little evidence of churning. Sometimes it is in the best interests of the client to upgrade their policy and it has nothing to do with churning. Any lapses I have experienced in recent years have been due to a client’s change of circumstances e.g. loss of employment and can no longer afford their policy. We are still experiencing the effects of the GFC rather than churning.
The fundamental way to fix a problem, is to first recognise what the problem is and where the problem is coming from. Once there is a clear understanding of ‘all’ the issues and how this problem is occuring, then and only then, can remedies be put in place to fix it.
The Life companies need to investigate the exact causes around policies lapsing or ceasing, which as I noted in previous discussions around churning, is a simple questionnaire that clients will answer when the retention teams call to try and save the policy. The questionnaire will have a tickbox with all the reasons why clients policies are cancelled and a space to put other reasons which clients can tell the retention team if it does not fit in the tick boxes.
This data flow over 12 months will give precise reasons and as clients pay different ways e.g by credit card,bank Direct Debit, EFT, Cheque etc and different times e.g monthly, quarterly, half yearly, annually, it will take 1 year to collate all the Data for accuracy.
At that point, the life companies can present their information to ASIC, AFA, FPA, etc and ask for submissions from experts on how to fix the problems that are revealed.
Then as a Industry, we can say that all avenues have been thorougly researched and thought through and the Government will leave us alone which will be the best solution for everyone.
Bill Shorten knows nothing of private enterprise, of market forces, of running small business or of providing dedicated, professional client advice and customer service, loyalty, respect or the work/reward relationship.
He is a tax-payer supported public servant and ex-union supported official, who would be more at home in Mao Tse Tung’s regime.He has dreams of becoming a “great leader of our people”.
It is time for Bill to wake from that dream.
Unfortunately, “The Great Leap Forward”, the Chinese economic and social experiment between 1958 and 1961, was a devastating disaster.Anything the Labor Party has touched during their term in office has been ” A Great Leap Backward “, and a devastating disaster.
Bill Shorten would love to exert ultimate control over all financial services if possible….to control the advice process, to control the remuneration process, to control the marketing and promotion and to control the funding process in regard to Superannuation.
Bill probably lies in bed at night dreaming of a “People’s Retirement Fund”…….one gigantic pool of money, managed and controlled by the Gov’t for “the good of the nation’s people”.
The offer of self regulation regarding so called “Churning”,simply comes at a time when the Govt has no available funds to regulate.If they were flush with funds, rather than have wasted billions of dollars of tax payer’s monies, I firmly believe they wouldn’t even be offerring self-regulation. It would be “our way or the highway method “, a practice subscribed to every day by Mao Tse Julia.
There is the door Bill. Walk toward it….walk through it…..lock it behind you….throw away the key, keep walking and don’t look back.
Lapse ≠ Churn
Shorten and these other muppets might get the message if their salary was docked everytime something went wrong that they had no personal control over.
The Hegelian dialectic is the framework for guiding our thoughts and actions into conflicts that lead us to a predetermined solution. If we do not understand how the Hegelian dialectic shapes our perceptions of the world, then we do not know how we are helping to implement the vision. When we remain locked into dialectical thinking, we cannot see out of the box.
More info on Google.
The point is where do we want our industry to go? We must take part in the debate and achieve a result that favours the advisers, and then the companies, NOT just favouring the companies. We will have breathing space if we can defer until after the election, but that eventually will only defer the issues and for those who understand the Hegelian Dialectic, if taken to it’s ultimate conclusion, it won’t go away until someone achieves what they want
Let’s get involved. Contact all insurers, FSC AFA and let your views be known!
I’ve made a comment earlier here but would like to add a further one particularly for the new advisers amongst us.
Newer advisers with no client base to work from are going to be seriously disadvantaged if churn becomes a club to hit them over the head with. How will they pick up any clients if, when offering to review a prospect’s coverages, they find a need to increase them in the new enlightened post-churn age?
For instance, if they simply add bigger sums insured there will likely be a cancellation of the original policy, hence churn. If they change to another insurer which might better suit the client, especially in income insurance, it’s churn again. If I were starting now in the business under that kind of scenario I’d think again. It’s not “everywhich way, but loose”, but ‘everywhich way but lose’! Big difference.
Just another comment also, I cannot understand how anyone gets away with “churning” which means as I understand changing the policy after 12 months or so. If I went to any of my clients 12 months or shortly thereafter implementing a policy and suggested another company with all the requisite paperwork, personal statement, blood test or medical etc., they would smell a rat straight away. Most people aren’t that stupid these days.
I have never done it, never thought about it and can’t see the advantage for the long term sustainability and integrity of your business.
I’m just a bit perplexed at how any adviser can do it and get away with it.
Is it really a big issue out there?
Reading about this again is so frustrating!!!
Michael’s comments re the need for leadership….please do, we need associations like the AFA to show reason and logic to whom ever will listen.
I cannot speak for all risk advisers and planners, but I am personally so tired of going in circles on this perceived issue of churn, and the real issue of sustainability.
The insurers who offer over 100% on initial comm should be ashamed of themselves sitting at a table discussing these matters. Look at the food chain…. the BDMs are remunerated on new business, some on longevity….and all managers and executives above this line too…. and they’re still in profit mode. Without advisers/planners they would be living under a park bench!
FSC can set some basic yes/no/maybe questions:
Insurers have retention teams, so why not call the client and ask them to answer these.. AND some basic questions for advisers to answer on all new applications. Its a no brainier – how can 10+ execs sit and discuss the future of a service industry without the facts..
I know this may be cynical but dare I say that insurers recording information for 12 months for all new polices combined with client answers and then presenting the facts surrounding “Lapses” would be a good start!
Its easy to avoid what they call CHURNING !!!
Leave all products exactly the same – including definitions !!!
Leave all pricing between Life Companies – exactly the same !!!!!
Then the adviser would not have to change or review or do anything at all – as all product & pricing will always remain the same !!!!
Will this happen ….. NOT LIKELY !!!!
Life companies want Market share & they have to remain competitive ….. improve pricing and products ….
So this is an ABSOLUTE WASTE OF MONEY … to even debate such crap…
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