ASIC has admitted that some life insurance companies are aware of which advisers have been churning despite the latter not taking any action on the matter.
The admission was made by ASIC Deputy Chair, Peter Kell while appearing before a recent hearing of Parliamentary Joint Committee for Oversight of the Australian Securities and Investments Commission and the Takeovers Panel.
Kell made the statement in response to Bert Van Manen, MP who said life insurers had a role in dealing with advisers involved in the inappropriate replacement of policies and “…there are any number of insurance companies I have spoken to who actually know who these people are”.
In response Kell said, “It is interesting that you say that, because, in collecting this information from the insurers, we have had a few instances where insurers have said, ‘Oh, yes, well, we thought that name would pop up,’ and I suppose we have been a bit disappointed in some instances that, if it is clearly an issue, it has not been drawn up before.”
Van Manen also said that where life insurance companies were aware of churning, advisers had been placed on level commissions, and dealer groups also knew who these advisers were “…because they can tell by the revenue reports and replacement policies”.
Earlier in the proceedings Kell said ‘churn’ was not a legal term under the laws ASIC administered and it did not consider there was a point that all instances of switching or churning a policy were examples of problematic advice or misconduct.
To this Van Manen replied, “But in fairness that has been the message that has been communicated.”
Well hello, Captain Obvious, #knockmeoverwithafeather
The issue of only taking actions like level premiums with churners is that they can simply switch insurers until the next insurer wises up. Was it a “beggar thy neighbour, I don’t want to get involved in a fight which would result from naming and shaming the adviser”?
The consequence was an overall reduction in profitability by the life insurers which led to the lower commissions for advisers.
In other words the consequences fell first on the insurers and now on the advisers while some people made a lot of money for a while harming both clients and insurance companies. The insurance companies were in a position to stop this and chose not to.
ASIC are so slow…..The insurers actively encouraged the practice, bigger bonuses when they make targets
ASIC slow….more like in a comma at the time. This is all manufactured for the FSC. ASIC could have addressed matters and done the enforcement. They did not. ASIC could have removed these advisers and prosecuted as they should both the adviser, their dealer group and the insurer. They did not. ASIC is a lousy cop on the beat as they have consistently let down consumers and the industry over and over again. Just consider the past…you know Great Southern, Timbercorp, Westpoint etc. They rubber stamped the prospectuses then appeared shocked at the disaster they caused or indeed contributed to. Lousy incompetent fools along with morons in office on both sides of the political divide and now LIF revelations like this. I have NO confidence in ASIC much less the the FSC and I see the risk adviser becoming a thing of the past. Simply trampled into the ground and what is left will be a disaster. After all are we not essentially copying the UK on this. It did not work there and it won’t work here. Hey BDM’s in the risk space, you might want to get a look at SEEK.com for that next job. You are caught in this along with us. Should have got myself into law….now that’s where the money is and soon will be….
A further point regarding letting churners do their thing:
Would a lot of clients be harmed as new policies would be more likely to have exclusions as people age? Would clients be harmed through churning when insurance policy conditions worsened as they did at least once legislatively and with mental health issues being looked at much more closely now as just two examples? Would there have been other forms of harm to clients?
Is this a major issue or were the insurers correct in ignoring this dimension? The insurers are in a position to know as they are aware of existing insurance and any exclusions they gave due to recent changes.
Would it be possible for people to make their contributions under their real name? It may lead to a less emotional discussion, one that would not be so easy to ignore.
I consider the abolishing of up-front commissions an unalloyed good. They were not in the interest of clients for quite a few reasons. This is even more true for up-front above 110% as that leads to further conflicts of interest.
Finally we get an admission that Life Companies knew who the small number of churners were and they did nothing, though that is incorrect.
Those Life Companies, by staying silent, were complicit in the fiasco that followed, where all advisers were effectively rolled into the churner category and the Life Companies added fuel to the fire, via the disgraceful actions of the FSC, who are funded by and controlled by the Big Banks and Life Companies whose sole purpose was to push through their agenda and ignore the facts that were staring them in the face.
Then Peter Kell stated that Churn was not a Legal Term under the laws that ASIC administers and not all cases of switching or churning were examples of problematic advice or misconduct.
Is that a misprint? as the whole focus on screwing down commissions and putting a 2 year responsibility period on advisers, was based on the Mirage called CHURN.
As a junior adviser I was encouraged to churn. Also other things encouraged to make money for the company versus client’s best interest. Hence I no longer work there and no longer take commissions. Although I don’t believe they should be banned. Consumer should have a choice of commission vs upfront fee.
Would someone please send Kell and the clowns at ASIC the NZ Financial Markets Authority report into Life insurance. You know, the objective report with a sound methodology (investigating 100s of risk advisers, not 79 churners) that found commissions are not harmful in themselves but a valid form of remuneration & churn is limited to a low percentage of advisers. Love to hear the ASIC response. Would also be interesting to have ASIC questioned as to why, if they knew insurers could identify churners, they didn’t order insurers to cease business & then move to remove the churners from the industry?
@ Warren B,
There will be an obvious reduction in business from the retail sector, because no risk only writer can afford to stay in the business even with level premiums once they get to around 20% -30%. The life companies are counting on getting their business via direct marketing without the adviser cost and will count on adding to their profitability by offering inferior products. In other words, no adviser input leads to “caveat emptor”.
@ Christoph Schnelle,
You are either an ISA plant or a risk writer that’s only been in the business 5 minutes and would be flat out writing more than 5 clients per annum.
Your comments are so far out there that it’s obvious that you live in a parallel universe to the rest of us on this planet, and it’s clear from your comments that you are on your own with that “way out there ” train of thought.
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