August 25, 2017
The number of advisers engaged in churning life insurance policies may be relatively low, according to ASIC, which has claimed recent lapse data gathering activities are providing a clearer picture on the issue.
Appearing at a recent Parliamentary Joint Committee on Corporations and Financial Services hearing into the Oversight of ASIC, the regulator was questioned by PJC member Jason Falinski as to why it had not adopted a targeted approach to dealing with churn as identified in Report 413.
“Rather than regulating the entire sector…maybe a more effective or surgical approach would have been to identify the people who were doing it and either alert them to the fact that they were doing it and they would stop, or manage them out of the sector,” Falinski said.
In response, ASIC Deputy Chair, Peter Kell said the ability of ASIC to better identify advisers who were churning was a result of successive reforms that followed Report 413 which has since allowed ASIC to collect lapse rate data from life insurers.
“It’s still fairly early days, but what it has allowed us to do already is to identify a population of advisers that are potentially at risk of being in that category,” Kell said.
“I think it was around 500 to start with. But, after applying a range of filters, it’s allowed us to work that down to a much, much smaller number…”
“I think it was around 500 to start with. But, after applying a range of filters, it’s allowed us to work that down to a much, much smaller number, and you can have a much more targeted and focused look at a much smaller number of advisers rather than a more scattergun type of approach,” Kell added.
“That is now in train. I think we’re doing the follow-up work on that much smaller number. It’s less than 10 per cent of the initial pool of advisers where there may be a much greater risk.”
Also speaking at the hearing ASIC Commissioner John Mr Price said there was a good opportunity to adopt more targeted approaches “…but, to do that, you really need a good data set, and we do not always have that at the moment”.
In the past, ASIC stated it had difficulty in determining churning as it was not able to determine the reason for a policy being moved or changed (see: ASIC Admits Churning Numbers Difficult to Quantify).
The regulator is currently collecting claims and lapse data from life insurers, in conjunction with APRA, as part of its requirement to monitor the sector under the incoming Life Insurance Framework regime and release a report in 2021 (see: Regulators Begin Collection of Claims Data).
The comments from ASIC reflect similar numbers gathered by the New Zealand financial services regulator, the Financial Markets Authority (FMA), which found churn was likely only among a handful of advisers in that market (see: NZ Regulator Claims Churn A Minor Problem).
As a result of these findings, the New Zealand Government opted to retain life insurance commissions in their current form (see: Risk Commissions in NZ to Stay).