Latest Poll – Should Insurers Notify ASIC on Churning?

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Should insurers be required to report churning activity to ASIC?
  • Yes (72%)
  • No (19%)
  • Not sure (9%)

Our latest poll seeks your input on whether your peers should be held to a more rigorous process of accountability in relation to churning practices.

We wrote last week that ASIC had admitted to a Federal Government inquiry that some life companies were aware of which advisers have been churning life insurance policies (see: ASIC Claims Some Insurers Were Aware of Churning).

Adviser reaction to our story was swift and generally critical that more has not been done by the insurers to identify and penalise proven churners. While insurers have taken unofficial, self-regulatory action to address churning (eg restricting known churners to level commissions only on new or replacement business cases, or refusing to accept any new business from some advisers), there has never existed a formal process of identification and potential notification.

Have we arrived at a point at which the industry should consider setting activity benchmarks, above which insurers would be required to notify ASIC of suspect churning behaviour?

Using a comprehensive study of the New Zealand market as a starting point, the NZ Financial Markets Authority defined a high rate of replacement busines as when at least 12% of an adviser’s policies lapsed in one year and the adviser wrote corresponding levels of new business in the same period. It also included when at least 40 policies lapsed in a single month and the adviser wrote the same level of new business in the same month (see: NZ regulator Claims Churn a Minor Problem).

NZ regulators preferred …to monitor activity spikes through comprehensive …analysis of adviser behaviour

Would you support an Australian version of this regulatory benchmark?

As we observed last year when reporting New Zealand’s approach to life insurance advice reform, the NZ path involves less prescriptive solutions when compared with Australia’s Life Insurance Framework reform legislation, in which NZ regulators preferred rather to monitor activity spikes through comprehensive and ongoing analysis of adviser behaviour.

Ironically, much of the motivation suporting the implementation of the Life Insurance Framework remuneration reforms is based on the aim of removing or severely restricting conflicted remuneration in order to protect the consumer. But perhaps the same outcome could have been achieved in taking a more focussed approach of identifying and targeting those advisers who fail to adhere to reasonable replacement business levels.

It’s over to you and we’ll report back next week…



2 COMMENTS

  1. Insurer’s should also notify ASIC of advisers who hold insurers over a barrel for changes to commission structures. How does writing business with Insurer A instead of Insurer B because A has a more favourable commission structure relate to the customer’s best interests?

  2. The horse has already bolted, the difference being, NZ acted intelligently and honestly in assessing potential churn issues.

    NZ then acted intelligently and honestly to address what was found to be a minor % of
    advisers churning and came up with a simple, effective solution that did not penalise the vast majority of honest, hardworking advisers who do the right thing.

    Australia on the other hand, spent tens of millions of dollars of Tax payers money to
    investigate churn and after years of taking submissions, what did the Government end up with?

    1) No verifiable proof that churn exists to the point where it became an issue that meant
    Government intervention was required.

    2) No formula that easily identifies what churn is, or a proper, clearly articulated
    analysis of what percentage of policy cancellations were related to churn, compared to, for instance, clients cancelling due to a large % increase in their premium on renewal.

    Instead, the Government ignored comprehensive and honest research that contradicted the mis-truths perpetrated by the FSC, who were aided and abetted by the majority of Life Insurance Companies with their silence, that was an admission they were either hiding the truth, or did not have proper evidence to prove that churn
    was an issue, or both.

    To this day, no-one knows if data being collated by ASIC, is being collected properly,
    what the protocols are that sit behind this data, which if incorrect, will mean all their analysis will be wrong when they report back to the Government.

    It is ironic that advisers must adhere to a Best Interest Duty, yet that does not apply to any entities that deal with advisers.

    The whole reason and purpose behind these years of mayhem, was to protect the consumers best interest, which has been a failure, as rogue Direct and Industry Insurers who peddle rubbish Insurance, with little requirement for them to comply with
    ANY Interest, yet alone Best Interest Duties, while still flogging terrible policies that give Australians a false sense of security, is not the result anyone wanted or deserved.

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