The life insurance industry has been largely supportive of the Financial Services Council’s (FSC) initiative to stop churn, but advisers have mixed opinions about whether it will curb the practice.
Responding to the FSC’s proposed binding standard to address the practice of churning, Asteron conducted a survey of advisers to determine whether the approach would reduce churn.
The insurer said that while the vast majority of advisers did not agree with the practice of churn they were concerned that the proposed standard would penalise them, without solving the problem.
The survey found:
- More than half (56%) of advisers believe that removing takeover terms will not reduce churn
- Nearly one third (29.4%) believe removing takeover terms will help to reduce churn
- Two thirds (65.4%) of advisers feel that changing the adviser responsibility period will reduce churn
- A quarter of advisers (25%) feel that changing the responsibility will not reduce churn
The majority of advisers who voted agree with Asteron that not all replacement business is churn, and therefore asked: “Why penalise all advisers for the few that do churn?” One adviser commented: “Those that churn will always find a way to churn.”
Asteron’s Executive General Manager, Jordan Hawke, said while the introduction of a standard responsibility period was an important first step he believed it should be extended further than two-years.
“Our own experience shows that policy cancellations due to adviser recommendation combined with rising cost pressures and lack of affordability for clients, occurs mostly between three and seven years,” Mr Hawke said.
Head of Product, Marketing and Reinsurance at OnePath, Gerard Kerr, agrees with the approach to responsibility periods, but is more cautious about the time-frame.
One thing FoFA has taught us is you don’t want to create something very quickly and create unintended consequences
“I think you need to see how this (two-year period) goes first,” he told riskinfo. “One thing FoFA has taught us is you don’t want to launch something very quickly and create unintended consequences.
“You could certainly put forward the case for making it three years, but let’s go into it with eyes wide open, one step at a time, so we don’t create those unintended consequences.
“The early churners tend to do it around that twelve month period so this will impact them. But it doesn’t impact the good advisers. That’s what I like about it,” he added.
Mr Kerr was also supportive of the removal of takeover terms because he believes the intent is to prevent bulk transfers from one insurer to another. “For those people who want to just transfer from one provider to another with no underwriting, that does eventually create instability (in the industry). So it’s trying to maintain continuity for everyone over the long term,” said Mr Kerr.
FSC CEO John Brogden introduced the proposed standard at the FSC National Conference last week, saying that while the problem of churning was not widespread, it still required attention.
