Insurers Aiming to Define Churn

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Life insurers are working with ASIC to reach an industry definition around ‘churn’ but are still dealing with it on a case by case basis, according to the heads of a major life insurer.

AMP CEO, Craig Meller
AMP CEO, Craig Meller

Addressing a hearing of the Parliamentary Joint Committee Inquiry into life insurance, AMP Group Executive Insurance, Megan Beer said AMP was “…working very closely with ASIC and the rest of the industry on developing standardised reporting, so we can have more confidence as an industry on how we are looking at this”.

AMP Chief Executive, Craig Meller, appearing alongside Beer at the hearing, defined churn “…as where an adviser has moved a client from one policy to another with no benefit to the client but with a remuneration payment to the adviser”.

He added that if there was a clear appropriate benefit to the client AMP would regard the move as appropriate business that fulfilled best interest obligations under FoFA.

…AMP was “…working very closely with ASIC and the rest of the industry on developing standardised reporting…”

Beer said AMP addressed any instances of churn as they happened and on their merits which required a consideration of each case on an individual basis.

“We look at it depending on an understanding of the practice and the business model the adviser runs, the age of the book and the level of new business written,” Beer said.

“When we do see lapse rates elevated above the average for a similar type of book the adviser has,  it might be 15 to 20 per cent, our first port of call is to discuss that with the adviser to understand what is happening there and if appropriate to raise it with their licensee,” Beer added.

Meller said AMP was aware of when churn may be taking place and had developed audit and data systems that helped identify possible instances of churn.

“We can look at particular risk indicators across the portfolio and say this indicator could be of a problem and be much more focused where we apply those audits,” Meller said, adding that any adviser in the AMP network found churning was terminated immediately and the behaviour reported to ASIC under AMP’s breach reporting requirements.



8 COMMENTS

  1. I wonder if the AMP’s view of no benefit to the client would include the fact that when that company increased old National Mutual Income Protection policies on level rates by 30.0%, recently, is that considered by them as “churn” when moved to another insurer.

    just because applicants will face another insurers current level rates albeit that they may be higher than the AMP increase, the morality question for the client and the adviser is, why would you want to stay with a company that arbitrarily can increase level rates at will.

    Life companies have been guilty of increasing Group Life policies by 85.0%, with 2 months notice. They have been guilty of loading old legacy products by 53.0% over 2 years just to get rid of good clients with better contract terms than now available.

    They have been guilty of maintaining existing contracts for clients at a price but then replacing those existing contracts for new clients with an inferior one.

    The basis for moving clients needs closer scrutiny than just what’s in it for the adviser !

  2. This is brilliant. The horse has bolted and now someone is finally asking what defines a churn. Should this have been done right at the outset of the whole farcical sorry affair. No one still really knows however what constitutes a churn.
    AMP state they know and were knocking on advisers doors. No doubt AMP have told this story before, but the regulators had ear plugs in at the time.

  3. So, does this confirm that ASIC has never fully understood what churn is?

    The AMP CEO has concisely defined in one sentence, a clear and correct definition of
    churn. So why did it take so long and at a cost of many millions of dollars, for the Industry, Regulators and the Government, to have come up with a false premise and Government Intervention, based on false information and false data, which as far as we know is continuing to be used to create false analytics, which will further exacerbate the under-insurance epidemic facing Australia and cripple Independent risk only advisers.

    Have the Insurance Companies had much input into information they are collating and
    sending to the regulators?

    Is the information truly accurate or relevant to the churn issue?

    What is clear from this article, is that this whole process has been flawed from DAY ONE and as usual, the big lobby groups have muddied the waters so they could
    push their barrows, flog their lies to an inexperienced Government, with incompetent public servants, that are institutionalised robots and effectively hoodwinked everyone into believing something that they have never proved was correct, let alone explain what it actually meant.

    The wheel of incompetence keeps turning and there will always be leeches and theoretical experts who will jump aboard to grab a slice of the pie, with NIL benefit to
    anyone but themselves.

  4. Based on Craig Meller’s definition it’s a no brainer to dump a legacy policy with inferior benefits and replace it with a policy that increases the life insured’s chance of making a successful claim. Price is almost irrelevant.

    • Agree under this definition price can be see no as irrelevant. Never ignore the dangers of replacing a non-avoidable policy with one that is at risk of avoidance under the restored 3 year non-disclosure period, for a client who – if they are a typical Aussie has probably got a deteriorating body but fails to acknowledge this so is subconsciously going to underplay disclosure. These cases are coming out of everyone’s woodwork.

  5. @ Sue Laing,
    It goes without saying that replacing an existing policy with another without having the client have a full medical first, just in case there are issues around, that are not known, is not only stupid but costly… for both the client and the adviser.
    Who could forget the Westpac $1.5m case where the client failed to disclose a pre-existing health issue before replacing his existing policy.

    From memory the adviser was asked to cough up $750,000. I’m not sure if his PI covered him or not.
    Either way it was a careless act that should be a warning to all, before you consider policy replacement.

    • Actually Sue it was AIA and both the company and the adviser were found conjointly liable. The adviser who shall remain nameless did all he could to assist the client and is revered in the industry as a spokesman for great adviser conduct. He actually conjointly went on tape with AIA outlining what had happened and warned advisers of how easy it was to fall into a trap no matter how hard you may be trying. He has since put in place a series of additional checks that he has shared with the industry to try and ensure no one else has it happen to them.There is a lot more to the story than just switching a policy

  6. @ Ken,
    First off, I’m know there is more to this story than what I alluded to in my previous post.
    I’m aware that the client knew he had a pre-existing problem and failed to disclose when he completed his replacement application.

    I’m presuming the existing policy was accepted on take-over terms otherwise PMAR’s, a full medical including bloods would have revealed the previous issue around non-disclosure.
    It’s admiral that the particular adviser has taken additional steps to avoid or try and prevent such an issue happening again.
    My point was, irrespective of arranging a replacement policy, it would be smart practice to organise a full medical including the bloods and expect the new insurer to call for a PMAR given the size of the amount of cover before there’s a switch of insurers.

    The comments by Sue Laing should be listened to, she’s absolutely right !

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