In addressing the issue of churning, which of the following initiatives would you support?
- Create an industry-wide black list for ’serial’ churners (53%)
- Offer more attractive remuneration to advisers for upgrading existing policies (45%)
- Offer ‘quality’ incentives to advisers for maintaining low lapse ratios (39%)
- Institute a consistent adviser responsibility across all insurers (31%)
- Remove takeover terms for all re-issued policies (28%)
- Ban upfront commissions on replacement policies only (19%)
- Ban all upfront/hybrid commissions but allow level commissions (14%)
- Ban all commissions (4%)
The debate on churning continues to evolve, but opinions are divided about the solution.
We are asking advisers to tell us what they think:
In addressing the issue of churning, which of the following initiatives would you support?
Based on previous comments to riskinfo from advisers, licensees and life company management, some of the solutions put forward include:
- Ban all commissions
- Ban all upfront/hybrid commissions but allow level commissions
- Ban upfront commissions on replacement policies only
- Offer ‘quality’ incentives to advisers for maintaining low lapse ratios
- Offer more attractive remuneration to advisers for upgrading existing policies
- Create an industry-wide black list for ’serial’ churners
In addition to this list, the Financial Services Council has announced its intention to:
- Remove takeover terms for all re-issued policies
- Institute a consistent adviser responsibility across all insurers
These suggested solutions all have their pros and cons. For example, banning all commissions or allowing only level commissions would mean an end to churning, but at what price? What impact would this ultimately have on consumers and the already imbalanced underinsurance equation? While each initiative would address the issue in one way, shape or form, we want to know about those initiatives you would actually support.
The vast majority of policies that are cancelled and re-issued are indeed in the best interests of the client. We are only asking this question in relation to those re-issued policies that are not in the client’s best interests, and will report the results to you next week…
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32 Comments
Can’t vote as there is no choice for, none of the above.
What is churning? Is it finding a better deal for your client? Is it getting a better quality product for the same money?
Perhaps the real question is, why is this a major issue and for whom?
Obviously the only ones at a disadvantage by finding better or cheaper product for YOUR client is the extremely profitable banks/ insurance companies. Is it them pushing this barrow with Shorten, can’t think who else would benefit! Certainly not the client.
Life companies need to make alterations/increases easier to do. In many cases advisers probably find it easier for them and the client to re-write a new policy rather than try to go through hoops for an increase. SOA’s should also be modified down to a smaller ‘review advice’ but most dealer groups require a long-winded SOA. It should be easy to review and increase/alter a client policy but the fact is it isn’t. Compliance and life company software to blame - not advisers (with exception of a small number of bad apples).
There is little incentive to upgrade - previous comments have said that. Quality incentives to maintain low lapse rates is good, but better financial incentives to upgrade with the same insurer is better. In most cases a client is advantaged rather than disadvantaged by changing a policy.
Another option that should be considered is only allowing upfront commissions on replaced policies that are older than a certain date e.g. 5 years. As you’ve commented on in your article, the vast majority of policies that are replaced are in the clients best interests, in which case why shouldn’t the adviser be able to take up front commissions if they need that to cover the upfront costs associated with the work required to set up the new policy which is no less just because it is a replacement policy
Who’s the “villain” in this situation? An Adviser is called a ’serial’ churner for replacing an existing policy and saving a client say 18% of current premium yet “Onepath” can put up their premiums by 18% after attracting a lot of business at very attractive rates. I think the insurers and their churning cheating actuaries need to have a very long look in the “Mirror”
This agenda clearly suits the insurers not the advisers or their clients. A black list may only work if all insurers signed up to it (good luck with that) and one could imagine how much business the one insurer who ignored it would be able to get…! The answer to “what is so wrong with the current system?” has really not been answered so one can only think these rules have been suggested by those insurers who have been losing the most in force business and writing the least in new business? Perhaps if they were to direct their efforts in to how to turn that around would provide far better outcomes for ALL parties?
we have businesses to run and we have to pay staff powere etc we need upfront commissions to pay all of the above and it is our job to make sure our clients have the best policy available if up front commission is stopped how many staff will be retrenched and may have to go on social benefits this government is not thinking to far ahead.
As said previously why shouldn’t an adviser move the business if the client is better off? - And take commission again to cover such costs etc. If we do not do this we risk losing clients to other adviser’s who will give them a better offer (and take the commission anyway) Damned if we do Damned if we don’t.
Come on guys and gals! Look at the bigger picture. Churning for the sake is an Industry problem and certainly impacts on the cost of current policies to your clients. Less churn = greater sustainability=lower product cost = better value for clients = less under insurance.It is not by co-incidence that it is on the radar of the regulator and the zealots of purity. Of course we can all point to where we can justify the need to replace existing cover. BUT PLEASE consider the bigger picture and ultimately what we need to be doing to be seen as truly professional… it will otherwise be taken out of our hands, as simple as that! Talk to your main supplier/s and see what they say about the real problems in relation to sustainability. It takes at least 7.. yes not 3 or 5 years… for the product to cut even against the expenses of creation, getting on the books and associated costs, including the “c” word, and paying claims etc. Agreed we all have businesses to run and maybe we need to review our business plans to accomadate the future as it may well be under FoFA. Not being over critical, just expressing some reality in a tough market getting lots of soveriegn intervention!
As long as the change of policy is in the clients best interest, no one should be complaining, as we are doing what we are meant to do. We have to get paid for this as the work involved is a long process and sometimes even the upfront commission is not sufficient to pay for the work done. This also keeps insurance companies honest (else they would not bother about existing policy holders). If advisers are not acting in clients’ best interests then there is new legislation that will at some stage hopefully catch them out. The solution is for insurers to keep existing clients happy so that they don’t “opt out”!
To suggest that advisers could and do change policies around that are of no benefit to our clients is ridiculous. It implies we are unethical & dishonest and/or our clients are stupid or both? This obviously is not the case so churning (a hyocritical banking term) or ‘twisting’ is not a major problem. Yet we are all caught up in this debate. Ask who gains from any or all these changes? Certainly not the adviser, so it must be the insurance companies in particular the bank vertically aligned insurers. So it is not extraordinary that Jordan Hawke from Asteron (Suncorp Bank) is the designated crusader for these changes.
Who will pay and suffer as a result of these changes? Hard working advisers working on a performanced base renumeration (commissions) and clients when their ability to change from one solution to another is drastically reduced by this free market manipulation.
Perhaps the days of the large upfronts are numbered but hybrid and level should still remain valid options, or alternately all companies align in what is paid so there’s no bias for one company over another.
Again, as long as the client is number one, the rest should be irrelevant.
Firstly, a distinction needs to be made on an adviser who replaces a policy ( with client advantage ) that is already on THE BOOKS; compared with a situation where the adviser takes on a NEW client and replaces the lot, again with client advantage. The former action is more open to critiscism than the latter. We all know some advisers, albeit a very few, who can make a good living but never look for new clients
Worse still, the life offices know who they are but the BDMs ignore the problem - its all about production and sales targets. And the dealers would prefer 10% of new business commission rather than 10% of renewal commission, so don’t expect their policing involvement.
And who owns the majority of dealer groups- why its the insurers.
I think Mr Brogden is running a sort of publicity campaign to ward off Government attention ( or is it the Industry funds attention )as a sort of pre-emptive strike.
If Mr Brogden has any access to corporate memory in the FSC, then he would know that while the industry may agree to stamp out “churners”, the history of his organization over many years is that some insurers will toe the line on a particular policy stance, and those who see an advantage elsewhere WILL NOT.
The biggest issue I have with those who churn thier own client base is the lack of professional field underwiting skills on display when a policy with the same insurer is replaced by the latest policy from the same insurer, purportedly for reasons of policy improvement, when those policy improvements are not being passed on by the insurer to existing policy holders.
Usually full upfront commission is available after a set number of years-say 5 or 7 years.The underwriting danger occurs when the adviser, or a back room person acting on the advisers behalf, completes an income protection application based on the original application, and compounds the matter by failing to enquire if the client can still substantiate the current monthly benefit.I have even seen cases where an Agreed Value policy has been replaced by an Indemnity policy to keep the deal sweet.
In my view, that action is not acting in the best interests of the client, may be inducing the client to commit an act of non-disclosure, or is in fact an act of fraud perpetrated by the adviser, if not an act of deception. Good luck for the claim !
Thats what we need to stamp out first, but no amount of extra compliance would fix that. What should occur is that the insurers should ask for fresh financials and apply an automatic PMR
If insurers provided incentive to upgrade their policies to their new contracts, that would be a great solution. Maybe a scaled commission depending on how old the original policy is. Maybe 50% normal commission for a policy 5 years old, scaling up to 100% for a ten year old policy. Presently the only other alternative to cover the cost incurred in upgrading an old policy is to move it to another insuer.
advisers need to be paid for their advice. In the event that a client will be far better off changing to another provider/product but knowing the adviser will not get paid… how does a business survive? advisers need to be compensated for their knowledge and expertise. I believe as stated above that the licensee/s need to be more active in this area. There could be a solution that anytime an adviser recommends a replacement product the advice needs to be signed off by audit before the advie can proceed.
Define Churning. I try NOT to move people if it is humanly possible, however the GFC has raised awareness among clients of the cost of what they have. if i dont change it, someone else will.
What protection will there be for advisers competing with the “money Back” no advice no care, no repsonsibility on line policy floggers, we deal with life companies that cativly compete against us. clients cabcel business with advisers to do it again (often with the same insurer) on line.
I”d like to know how many policies are “churned” by insurance companies themselves, eg Insurance Line (Tower) doing their press and TV ads flogging our clients and rewriting them with their direct marketing campaigns. Make no mistake they will cut us advisers out of the equation at the drop of a hat, that is the way they are headed. Then they have the hide to label someone who looks after their clients best interest a serial churner, give me a break. While we are on the subject the Management and Underwriters etc of all Insurers have no problems churning themselves from company to company for a few extra dollars then they bag the advisers for saving their clients a few dollars on their premiums. Hypocrites at best.
In my opinion the only churning takes place in the insurance companies” Mind. Policies are only changed for the betterment of the life insured,ie better definitions , price etc. otherwise we will lose that client.
Churning insurance from non super to super eg Income Protection with less premium, can mostly disadvantage the client’s net wealth over time, but can easily be portrayed as a saving through scoped advice. Cheaper premiums will always be found, but the real saving will be in the total advice package. I support level commissions as it doubles the value of your book and trail income. I Don’t think this issue will ever be fixed to suit the majority but level premiums mostly stop the churning if the policy has been in force for about 5 years or more.
This whole thing assumes that a client is ignorent, Will he know whether he is paying more for the same level of cover? Will he not ask why he is asked to pay more?
If this change is implimented who will monitor it and decide whether it is in the best interest of the client? and who will pay for it? Will that authority understand the finer points such as the impact on TPD in super under the current tax laws?
Who will benifit other than the life companies? Certainly not the customer. This would appear a clever way to throw dust in the eyes of the legislators and blame the “greedy’ advisers.
Its about time Life Coys were held responsible for these activities NOT the distribution channels which play by their rules.
If the life coys were sincere and wanted to display integrity about this matter rather than hit the risk writer in their pocket… they could stop looking over each others shoulders, re-introduce no -claim bonuses by increasing benefits every year (without additional costs) across all products, and offer “conditionally free” medicals / blood tests etc for all clients on every anniversary date…
Lets see how real life offices really are about stopping this (assuming they really want to) and not stand behind the much aligned risk writer and or legislation to hide their own dereliction of duty!
NO WAY should upfront be banned for replacement policies when the time taken to consider a replacement policy is always going to be longer than the time taken to review a client without any existing policies. You just need to consider the requirement called “Consequences or replacing a financial product” where you not only have to tell the client why you are recommending the new policy but also why you are not recommending the existing one to be retained.
who is the list for? other advisers?
insurance companies?( one wonders what they would do with the information) or the general public?
Does paying less for advice with an SOA for an increase mean less complinace? say a 1 page SOA or a file note or similar?
As a Senior Life Underwriter, few things annoy us more than serial Churners. How on earth can a case be made that churning policies every 13 months is in the clients’ best interests? Some of these serial Churners have the cheek to remind us of all the large business they place as leverage when negotiating sub-standard terms. What they mean to say is how much money they cost the insurer and what a blight their practice is on entire life insurance industry. Move these guys out of the industry yesterday - there are plenty of used cars waiting to be sold.
I feel like I am in an industry of idiots when I read articles like this! My response is change nothing, this survey is loaded. As for a black list of churners, that list would have to include the biggest product pushers at the banks etc. After all, Bank A moving a client from a Bank B product to a Bank A product is also churning!
How rediculous an idea banning commissions altogether is! There is NOT ONE industry in this world that doesn’t have an unscrupulous person in it. This is just another example of where the minority screws it up for the majority who are actually busy doing the right thing. Real Estate agents, New & Used Car Salesmen, Plumbers, Stockbrokers, Bankers etc etc. Even Canberra itself has its share of seat sniffers and call-girl paying politicians in it who don’t do the ‘right thing’ so to throw a blanket over our industry for churners is naive and quite frankly, unimaginative and puerile. There are times when a policy ABSOLUTELY SHOULD be re-written from one provider to another and I have no guilt in saying that whatsoever. In the one case I just recently re-wrote - the client had had no adviser service for over 5 years (not me!), their cover was under-quality yet overpriced and they couldn’t get any direct service from the life office itself. I had no hesitation in re-writing that clients cover and in the process - saved the client over $2,400 per annum. BLACKLIST SERIAL CHURNERS I SAY BUT LEAVE THE REST OF US PROFESSIONAL ADVISERS ALONE to do the respectable work that we do. It might be a good idea if some of these so-called do-gooders had a look in their own backyards before throwing stones into ours too. Fairdinkum…..!
I seem to remember back in the 90’s when FUDICIARY duty was the by word for our behavour as advisors and we had to place a customer advice statement with every application.Fudiciary ment the clients best interest.So where are we if we dont change a policy because it’ cost is evidencing an abnormal growth to the industry or it one that suffers from s cutoff date for the addition of upto date additions and upgrades as at comminsure with L&G POLIICIES FROM BEFORE ABOUT DEC ‘98 I THINK. THEY CAN SCREAM THEIR FANNIES OFF ABOUT IT BUT ALL UPGRADES ARE NOT COMPLETE WITH THE MODERN POLICY ESPECIALLY AMOUNG THE LEGACY (as they like to call them) POLICIES.
This is a new situation that has arisen in the last 10-115 years as the life Compnies and BANKS have manovered to get control of larger chunks of the market and then pretty much ignor the product of the aquisition company.
Look AT ANZ when it bought Greater Pacific Life, a bad example from years ago when they guaranteed the field force ,the name would not change. They not only changed the name but completly rewrote the non- forfiture rules forcing the end of policies.Where is our fudiciary duty then? where did it sit.I think churning is bull shit as it is being promoted.
If it is a problem have the dealers audit team asses that case and only that case if a complaint comes from a providor, if there is reasonable basis for the advice that is the end of it.jg
Frankly I have tired of having to defend myself about the so called evil of commissions and having to vote on innocuous alternatives. I suggest that we provide yet another alternative for insurers and Labor Governments alike and that is for all advisers currently being paid commissions offering to quit and then leave the underinsurance problem we have in Australia to the fee charging do gooders and then sit back and watch our national social security costings go off the planet!
A challenge for riskinfo:
Why not run a survey on what % of advisers would vote for an industry-wide black list to not write any business with those ’serial’ insurers that came up with this idiotic idea in the first place…?
A lot has been said here already, including my own comments a week ago.
Churning as an issue should die and it would if the life offices would let it. They’re keeping it on the boil. Most ethical advisers don’t recommend changing policies unless it is justified.
The few advisers who twist policies are the biggest offenders and they’re the ones who bring our industry into disrepute most.
Churning is a non-issue.
Sadly, the debate is driven by vested interests, contrary to the welfare of the public