Determining the extent of the churning problem will be difficult, the Australian Securities and Investments Commission (ASIC) has admitted.
Speaking to riskinfo this week, ASIC Senior Executive Leader, Investors and Financial Consumers, Joanna Bird, said that even with the support of life companies it would be difficult to generate hard data on how many advisers are churning.
… switching life insurance policies is not necessarily churn
“The problem is that switching life insurance policies is not necessarily churn. There may well be very good reasons why an adviser would change a client’s life insurance policy,” Ms Bird said.
“We see churning as cancelling existing policies and applying for new policies to maximise the adviser’s revenue, without delivering any real benefit to the client.
“We see that it causes real harm to clients, to consumers, and in those circumstances we want to take action against it.”
In order to attempt to quantify the issue, Ms Bird confirmed that ASIC will undertake a project to investigate churning. The initial stage of the project, will involve the collection of data from life insurers, as well as the surveillance of advice businesses.
“We’ve done a lot of licensing action recently (license cancellation, imposed conditions), and some of those have involved churn.
“Churn is an example of inappropriate advice, so we would treat it like we treat other forms of inappropriate advice.”
Ms Bird said the timing of ASIC’s interest in the issue was in part due to impending Future of Financial Advice (FoFA) reforms.
… we see it regularly enough to be concerned about it
“It’s a problem, and we see it regularly enough to be concerned about it, especially in circumstances where we have reason to believe that changes to the regulatory regime may make it more prevalent going forward… Commissions will still exist in relation to life insurance, so there might be an even stronger incentive to churn, in order to get commission for life insurance products, once the implementation of FoFA has gone through.”
These comments follow an announcement from the Financial Services Council (FSC), confirming it would be re-opening discussions with the life insurance industry about churning and sustainability (see: Government Pressures FSC to Re-open Churning Debate). Ms Bird said ASIC would support the industry self-regulating to address these issues, but that the regulator would continue to review advice practices to protect consumers.
“It’s in the interests of good advisers that we address this sort of thing,” she said.
Isn’t it awesome that ASIC and the insurance companies have no data on the churning issue yet want to completely change the advisers rules for advisers. Smells like Bill Shorten and his mates again beating up on advisers and trying to hide the real reasons for the changes.
By ASIC making the statement that churning is difficult to seperate from the other reasons why policies cancel and that they are requesting data from the Insurance Companies, is a step in the right direction, though it must be done correctly from day one or the Life Companies could be attacked for giving false data.
Whilst I would have thought that churners would have been able to have been identified under adviser’s obligations to know their client/know their product as defined in the previous legislation, the imminent legal obligation to place client’s interests first should enable ASIC to identify and take action against churners.
If it is in the client’s interests to switch, it is not churn.
If it is not in the client’s interests to switch it is against the law.
ASIC should identify churners and prosecute them rather than looking for dragons to slay.
AIA are using policy claims in their calculations (persistency)- go figure?
If its a real issue to insurers, they should turn away replaced business- Ha, that will be the day!
Life apps already have a section re replacement… The adviser needs to tick yes or no to this new app being a replacement…why not add an ‘if yes’ question which goes onto say if yes, are you willing to accept hybrid or level commission, if not then the adviser could be required to submit a business case (copy of soa or other) to show why there is a case for switching.
If the adviser cannot demonstrate this to the insurer’s satisfaction they may reject the application.
If Life companies did not continue to improve products and pricing to remain competitive and an adviser did not change a clients policy to the benefit of the client then they are not doing their job. A Risk premium can change between one company to the next by as much as 50% or more.
There are also some companies regardless of cost or product – you would never use – as they are unable and unwilling to pay claims …..
If the BDMs at grass roots level know who the churners are, all ASIC has to do is ask. All insurance companies who individual lapse rates, so who is ASIC trying to kid?
No mention of direct business!!!
It’s common knowledge that direct business lapse rates are significantly higher than advised business, yet this has not been considered.
This area of business is growing expedentially and no effort has been made to consider what contribution this makes to the lapse / churn issue.
Incidentally, its not really about churn, churn exisits but in advisor world it is a low percentage.
The issue is about lapse rates and Insurers profitability – call it for what it is!
Comments are closed.