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…
We now have specific interest to place our clients at the top of our list so please explain why I would be acting in the clients best interests if I DIDN”T switch their policy in the following case :
Client in perfect health
Term Life Premium $ 3,000 pa with INS A
RENEWAL
INS B offers same premium ie $3k psa but will pay me $3k commission.
So if I rebate the client $1,000 they will reduce their premium by 33%
As I say don’t I have to offer them this alternative if I am acting in their best interest ?
Wrong focus, when our focus is on the commission we will get instead of the client’s need for good quality advice and product at reasonable rates then we leave ourselves open to ridicule. The long form of this will be government action to keep “us bastards honest” This is not the image we want to foster as we seek to become a Profession rather than a job similar to car sales and selling cheap swamp land.
in certain cases it is in the clients interest to replace a policy so banning all and any types of rennumeration could leave a client disadvantaged
we see clients with old inflexible polices IP in particular that can not be upgraded.
As our profession evolves and insurers enhance their wordings and costs come down we would be found negligent if we did not replace these types of policies.
We have had serial churners in our profession for years but unfortunatly the receiving insurers were only interested in business through the door and did nothing about the practice even when brought to their attention.
What is stated above is correct, the vast majority of policies that are re-issued are in the best interests of the client. Once again, do we all suffer for the actions of a small minority? What is the responsibility of licensees in this? I get thoroughly audited every year. If I was churning then it would get picked up. For those advisers out there doing the wrong thing, you have to ask what their licencee is doing. My guess – turning a blind eye.
What is the definition of “CHURNING?”
I agree with Ron.
There must be a distinction between; acting in the clients best interest and profit before advice.
Advice must provide clear reason for replacement. If the advice is not in the interest of the client then the adviser needs to be disciplined – this is why there are audits. Also, making a 2 year industry-wide responsibility period is inappropriate. It does not provide flexibility to the adviser to make appropriate recommendations and it also penalises advisers for clients who legitimately drop off during that period – could be to another adviser, lost job, died, bankrupt, etc. The adviser should not be penalised. If professional advice is given, monitored and there are no complaints from the client then PLEASE leave the basis of recommendation to the qualified/experienced and professional adviser!
We need to look at this issue constructively and look at the what is trying to be achieved, advisers cannot accept longer responsibility periods on insurance policies because of our costs to operate our businesses, secondly if a client cancels a policy after 1 year and goes to another adviser why should we have to hand back any commission when our responsibility is for only 1 year, if we twist the business to someone else then we could have claw backs but their is a lot of instances where we could save the client money as the market is so competitive.
Yes, a murky issue indeed to decide what is churning and what is in the interest of the client. As a BDM in the past I knew of a couple of “serial churners’ but when raised with the insurers that were accepting the churned business, they didn’t want to know. I believe the only solution to this is a blacklist and cross-referencing between the insurers to stamp out those doing the wrong thing. I could offer up a couple of names to start the list off!
Level commission, the same commission for every insurance product, and absolutely a blacklist! Churners are giving the quality advisers a bad name. And of course there are valid reasons to replace and that does not make you a churner. If you have worked with one, you will know the difference. If you hear in the back office “I can’t replace their insurance so I don’t want to see or review them” then you are listening to a churner.
Churning is the term applied for non aligned advisers changing products, but the product group advisers are all doing exactly the same, that is changing products. Product changing is the standard function of the advice industry. It can not be stopped.
– Maintain choice in commission structure.
– Length of Responsibility Period to depend on commission structure (eg UF = 3 years, Hyb = 2 years, Lvl = 1 year).
– Blacklist known churners.
– Remove takeover terms.
Adding even more incentives will only run the risk of raising further criticism. Ultimately these incentives add to the client’s bottom line.
If the client is in a better position due to your recommendation (paying a lower premium and/or greater benefits), what is the problem?
A solution to stop churning would also for insurance companies to stop having new products that are cheap, but then put the premiums up on the older ones to subsidise new cleints.
If a client has a policy where rates are higher, and another insurer brings in cheaper rates, I would not be doing my job be recommending the client consider changing. I have been in the business 25 years and term life rate keep getting cheaper. People don’t die, that’s why our hospitals are so full. Labor legislating my income away!
I think there is a wrong emphasis on churning in the life industry.I thought it mostly applied to planners and retirment types. I have recently lost two largish lump sums from occupational super funds,realising loss at a time when the market is so low. Who ever they were they must be fortune tellers to be able to justify that sort of move. Who is to say they will be any better off.
Banning commission wont make a difference, these advisors might be from a fee based organisation. Banning replacement terms in the life bisiness might!Commission is the only way most of my client could aford to pay, nut I notice these days the fee is coming from the investment ( when you tick the box most of the players provide) now I ask how is that different to commision ? The S.O.A. allready show the cost to the client. How is a monthly fee from the balance of the account different to commission? It would look almost the same in an S.O.A.!
Churning does happen, but not by the vast majority of advisers. It is not a great industry problem, so why is there this interest from the government. Surely there are other bigger issues in our industry.We have a responsibility period in place( 1 and 2 years) why not just legislate to have a 2 year period. Again is this a massive problem, no. Why is our industry always singled out for legislation. It only dis-credits us as a whole. I am sick of being labeled with a few shonkys.
Churning (a hypocritical banking term) or ‘twisting’ is not a major problem according to insurance companies statistics as most ‘policy cancellations due to adviser recommendations occur mostly between 3 and 7 years’. So why are we all caught up in this debate? Who gains from these changes? Certainly not the hard working advisers working on a performance based remuneration (commission) structure. So it must be the insurance companies particularly those vertically aligned with banks. The crusader for these changes is Jordan Hawke from Asteron (Suncorp Bank), no surprize there. Who loses from these changes, the advisers and their clients who will find it difficult to change to a more appropriate solution due to this free market manipulation. This is about insurance companies clawing back hard earned commissions by increasing responsibility periods to cover off loses due to client’s inability to pay premiums due to the harsh economic realities many of them face in these difficult economic times. Ask your BDM to furnish you with the lapse rates of their policies yearly over the last 5 years. Watch them squirm, as the rates are through the roof, but my guess is they will put up all sorts of confidentiality reasons why they will not give that information to you.
Simple all life companies must have a nil commission premium and a commission premium. All advisors in their SOA must show the difference in costs and explain to the client that the difference means the client is paying for the commission and why the client would be better off taking one vs the other. The client can then decide the value proposition. Advisers seem to tell clients that it is the insurance company that pays them, this is clearly bullsh!t.
Churning is often about adviser revenue, but replacement can be about value , a client will have no difficuilty making a value decision.
I am so sick of this ..the regulators want the consumer reviewed regularly (and ignoring underwriting) the process is just unbelievably onerous….but don’t move insurers because if you do, your a churner….sorry, your SOA is too long and your clients don’t read them..good news though ….we don’t think you did this deliberately …..serious breach but, you forgot to show the dollar value of your trails next to the percentage in your SOA…and now, commissions should be banned and your not a professional unless you charge a fee….lets go opt in.
For god’s sake….what the hell is going on!!!
This industry has provided advice in Oz for over 160 years and while we are not perfect, we have driven product evolution and come a long long way from the tied agencies, tied product association’s, we are hurtling back to.
On the flip side, look at our competitors …..virtually no rules, the client can do insurance over the phone or online, almost like auto cover, with no paperwork, medicals or underwriting and in fact with none of the crap we have to put them through ….and boy, are they churning…..and let’s not forget the local insurers holding the cover behind the scenes….So, whose encouraging churning guys?
I think “Budz” above, hit the nail on the head…insurers need to stop offering new product that is “CHEAP” and dare I say it “substandard” which I believe undermine’s advisers and will bring our industry into further disrepute.
I am more than happy to leave my clients with their current insurers.
Perhaps rather than spending money trying to create new distribution systems that actually compete against us, insurers might do better to support the continuity of existing business, by more regular upgrades,lowering premiums or paying advisers a higher trail, to service the client.
Why is churning even on the agenda? Im certain there are some advisers that do write business with a plan to revisit the client a year later and write something else. However I am reasonably confident that reputable advisers already do act in the best interest of their clients. Client reviews help ensure that the levels of cover are appropriate and where products change clients can benefit because new products are either cheaper or offer better cover or both at a cheaper premium. Removing Upfronts is not going to change that. If there is no comm then advisers arent going to do this work for nothing are they? My suggestion is to raise the bar for entry to the industry so we have higher calibre advisers and not just people looking to make a quick dollar.
The easiest solution would be to standardise all commissions for all Providers. Adopt a standard remuneration system where upfront is 70% of the premium and ongoing is 30% (Similiar to hybrid or level premium arrangements).
This would discourage churn and reward retention.
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