Life insurance companies have been served notice by the Australian Securities and Investments Commission (ASIC), requiring them to provide data for a project relating to inappropriate insurance switching.
ASIC Deputy Chair, Peter Kell, confirmed today that the first phase of the regulator’s investigation into life insurance advice provided to retail customers was well underway. ASIC said in August that it would be undertaking the project, to investigate whether advisers are acting in the best interests of clients when advising them to switch life insurance policies (see: Risk Advice in ASIC Spotlight).
“We have served notice on a range of insurers whose products are being distributed through personal advice, to gather information at this stage, on how the industry is working and the sorts of policies that are being provided.
“These notices require insurers to give us information about policy types, with a focus on distribution channel, remuneration models, commission types, so on and so forth,” said Mr Kell
Riskinfo understands that life companies have been given until the end of November 2013 to comply with ASIC’s requests for data, and that the information to be supplied is detailed, and covers a wide scope. Specific licensee and authorised representative information is being sought, going back over a period of three years. Areas being investigated by ASIC include:
- The types of commission (upfront, hybrid, level, salary) that are paid by the insurer to its various distribution channels
- Lapse rates across policy types (eg: life, TPD, linked covers, etc)
- Information on the clawback model (if any) used by the insurer
- Information relating to policy duration
The second phase of the project will be what Mr Kell referred to as a “major surveillance of retail life insurance advice”.
“The purpose of the project is to hopefully lift standards over time, and we want to work with the industry on this project, and we will be talking to you further on this,” Mr Kell said.
ASIC advises a public report on the findings from the project will be released in the new year.
Interesting to read they have only requested information relating to products which are being distributed through personal advice channels.
What about direct marketing and online marketing. I hope they include this as constituting “personal advice”. Oh thats right They don’t give advice through these channels, do they???
What a joke.
This is just ASIC looking to justify a switch to level commissions being legislated.
As they say, you never start an inquiry unless you know the result!
I agree with Sue, will ASIC take into account the actions of direct marketing.As an example,they SELL a product with the lowest premium and inferior benefits,indemnity instead of agreed value, stepped premiums instead of level premiums and many other differences.
NO fact find ,NO SOA, NO justification except a lower premium. Would this be churning as well?
Two sets of rules, as usual.
Ray…I like you comments but also remember that these direct insurance offerings are quite often if not always more expensive because the customers are not underwritten.
Hope ASIC do look at the Banks they are the best at Churing.
“inappropriate insurance switching” ….
there won’t be much of an investigation. Anyone who has been in the Australian Life Industry for more than a month will say the same few names who have been getting away with it for years.
I’ve seen plenty strutting about like they’re some sort of guru on life insurance. In fact what they’re gurus at is making up credible reasons to shift the insurer every year or 2 for their own personal financial reward. Over the last 10 years I have seen the same “adviser” top the new business income at MLC, Comminsure, TAL, Aviva, AXA and AMP. Worst thing is all the insurers management knew exactly what they were getting i.e short term business and effectively condoned it. This enquiry is a waste of time and money
ASIC’s churn enquiry asking commission types, lapse rates, clawback models and policy duration, will give some information around the structure but very little around the reasons why policies lapse.
Has ASIC done any research on what ‘questions’ they need to ask that will give some clarity as to how a policy is defined as ‘churned’.
There are many reasons why a policy lapses and ASIC has previously stated they are looking at the Life Industry from a sustainability view point.
If the focus is on one area that has little bearing on the long term sustainability, or worse, does not address the fundamental causes of why policies lapse, then the enquiry is a waste of time and will cause more damage than good.
The most important part of any survey or enquiry, are the questions that will be asked.
If the people asking the questions have no expertise in the Life Insurance area, or have a vested interest, with little regard for all the participants, then this could have major negative implications.
I have said it a number of times before, that asking clients at the time of cancellation, the reasons why they are cancelling their policy, will give us all, the best answer and the best chance to fix the problem.
Have every Company offering Life Insurance products, use the same short questionnaire, which can then be collated by a independent body.
After 12 months, we will then have sufficient data to find out the real reasons, not something that is left open to criticism.
Jeremy…nicely said. Reasons for lapses over the last 12 months in my practice have ranged from, losing a job, getting a job where IP is offered in a GSC as part of the package, business going bad, people separating, cost of living pressures, stepped premiums getting out of control, no longer required and not to mention that “rock-and-a-hard-place” the Life Coy’s leave advisers in because they continuously make little changes to definitions, which means that you maybe damned-if-you-do-and-damned-if-you-don’t…
If the industry gives ASIC what they are requesting, then no doubt the policies that have lapsed over the last 12 months because of the reasons just given will end up in the figures and skew the statistics. This is what I would call an irrelevant sample and an awful waste of time and resources. ASIC, if you are intending on going down this path, then make sure you collect relevant information that will assist in an improvement, if in fact one needs to occur.
We don’t want another FOFA, which everybody knows has done nothing to address the perceived problems caused by the collapse of Storm.
A complete waste of time and money. If there is a problem and there probably is in a small number of cases then it can be easily fixed by firstly legislating against up front commissions and secondly have the commission paid at the same frequency as the premium. How crazy is it that a client can pay a monthly premium of $100 and then the next month the dealer is paid upwards of $1,200. Self regulation has not worked so unfortunately we ned legislation.
Another point, Ray James, you infer that stepped premiums are inferior to level. Any evidence here?
Hi Ian
It sound like you have a preference for level and/or hybrid commissions. I agree.
In that respect a ban on upfront commissions would be a boon for my business.
However, I like to know that upfronts are available: it keeps the insurers on their toes and ensures that they keep their features and definitions current and their premiums sharp.
In that respect, I believe a ban on upfront commissions would lead to less competition amongst the manufacturers and so would be bad for consumers.
I agree that stepped premiums aren’t inherently inferior to level premiums. Or vice-versa for that matter. Direct policies don’t provide the option and that is what makes them inferior in this respect.
Finally, on the topic of evidence, you say that self-regulation hasn’t worked in relation to insurance advice. Do you have any evidence?
I do not understand why ASIC is looking in the wrong direction again. Here is a quote from Risk Info dating back to the 23rd of June 2013 regarding “Lapse rates” or so called “Churn rates” and where they are primarily coming from :
“But Plan For Life added that the positive growth is counteracted by substantial lapses in the first twelve months after the sale. The study found that nearly 40% of policies purchased direct were lapsed within the first year. In contrast, retail business recorded an average of 8.4% of policies lapsing in year one”.
In looking at this…to be fair, the 2nd year lapse rates where almost the same at 13% from both channels (direct/advised). SO, where should ASIC be looking and regulating best interest????
We all know who the serial offenfers are, and we also know they are few, but effective, but we should be careful on the mantra of hybrids/level, instead of upfront – advisers with staff have to meet overheads. Target the offenders, not the witnesses.
Hers a thought-each insurer agrees to pay commissions on 3 levels for every adviser, in a calendar year
Might look like this
First $150-$200kpa FYC – paid at full upfront
Next $150 hybrid around 80% up front
Over $300k pa 25% level ONLY
NB- the levels are arbritary, but the concept is surely worth discussing. Yes some of the smarties have more than one agency number with some insurers, but honest (?) insurers could sort that out-who signed the SOA.
Increasing clawbacks is taking a bulldozer to crack a nut
Most of the serial offenders have a lot of support staff, but proportionately few advisers. Its a process to them-do a “review”, twist policy to another insurer
How fair dinkum is ASIC. Will they ask for information from those insurers who have been the victim of the churners. Those insurers know exactly whats going on, but somehow ASIC dont ask them the questions
Take note Premiums have reduced over last 5 years by up to 30% so If all companies gave our clients todays new reduced premiums with todays better benefits by way of endorsements no underwriting all old policies would not be required to be churned. If churning a policy improves a clients position (best interest rule) the advisor would be negligent if they did NOT. What if a client finds out in a few years he paid thousands of dollars more than they should have or a new benefit was introduced & they did not have it…..hello PI lawyers.
KSO, agree totally with your comment. Life Co’s have trimmed pricing & improved benefits dramatically over the past few years to stay competitive in the market. Advisers are the “guinea pigs” in this game as we are the Channellers for the Life Companies Products. Yes, they are products, and we sell these products, or to put it in a better way, our client’s buy these products for a particular need for protection or security, as assisted by us. Have been involved in risk advice for 30 years. Have seen all the trends, All the flavours of the month insurers, with there new whizz bang benefits & pricing. Sell our “stuff” it’s the best. I went through the phase of offering Level Premium policy’s to my client’s & the problem is, like a new 2013 Holden, the 2003 model is now redundant & worth nothing. With pricing changes that have occurred to Life products over the past 10 plus years, you would be doing your client a disservice by recommending a Level premium policy in many cases.
As a small one man practice, cash flow is important, so why would I not take upfront commission as offered by the insurerer. I live in a capitalist country, and I am not a communist.
Regarding “Churning”. If I see an inappropriate policy(s) in place on a referral,or prospect I have seen, On the basis that this is firstly for the benefit of the client, then I will have no hesitation in replacing this current policy.
Quick example. A self-employed 51 yr old sole director had a $1,000,000 life cover outside of Super. Policy was set up 2 years ago by a bank adviser to cover business & personal debt. No tax deductibility on premiums. Client’s health good. Why would I not rewrite that under a term life Super.
Another example. Client changes from PAYG to S/E 5 years ago. an adviser set’s up a life trauma & IP package, walks away never reviewed. CLient’s income now 50% higher, more personal debt. Client’s health good. I will have no issues in replacing this business.
I do not profess to know it all, but I have the utmost disrespect for so called Advisers, that sell a product then walk away, and fail to regularly review or revisit that client as should be done. I see it all the time.
I will not hesitate in reviewing or having that policy if still appropriate for that client’s needs transferred away from that other adviser.
The Life companies have created this current issue with Sustainability, plus a now defunct Labour Government that crippled small business to an extent that, yes, a lot of policy’s have been cancelled, because that is the first thing that is stopped when finances are tight.
There will be no hard or fast answers to this one, but an ASIC witch-hunt, which is what appears to be happening is not going to help matters, in reference to having Australian Familes & small business Owners adequately protected. We are an under insured Nation as it I’d, and as we have seen from the Direct Marketers, with their lapse ratio’s, short term excitement buying by consumers, does not last more than 12 months.
Client’s need to be assisted in buying Life Products for long term needs & goals, not short term knee jerk buying because Uncle Dave died & left poor Aunty Jill with no money to pay the mortgage etc.
Enjoy your Witch-hunt ASIC
I started in the Life Insurance Industry in 1965,never had a widow on receiving her claim cheque say I was paid too much commission.
I wonder if ASIC were to look at the Life, and Income Protection claims over the last 50 years, remove those, and see how much Social Security would have to have been paid out they might understand how important and what a great job commission tax paying Insurance Advisers do.
Yes I could forgo Commission and charge a fee, say Frankston (where I lived) to Mitcham for a 7pm appointment, lasting say till 8-30pm, yes I can see clients handing over $250 for the initial fact finding appointment, then another $250 for the Plan presentation.
Then the administration costs of medical ect follow ups, all charged hourly rate like Solicitors, Accountants etc. Yes that would solve the commission problem, no life, trauma, Income protection would ever be sold at all !!!!
Most insurance providers upgrade their existing cover to include the new definitions and features. There are valid reasons to rewrite insurance, just not to do it based on calendar events like some planners do or did. I have clients that have had policies rewritten every 13 months by their previous planner. They also didn’t do updated personal statements either, so the potential for non disclosure was high, These practices need to be stopped.
Comments are closed.