Churning Debate – Your Say

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In response to the Financial Services Council’s major churning announcement last week, our latest poll provides you with an opportunity to have your say on the churning debate, as we ask:

Do you support the FSC’s latest policy proposal that advisers moving existing clients from one insurer to another within a five-year period will only be eligible for level commission?

The FSC’s new churning policy proposal, announced last week at its 2012 Life Insurance Conference, would implement a five-year restriction on remuneration for replacement business, where only level commission will be available to the adviser from the insurer.

riskinfo has confirmed that the FSC’s policy will apply for all replacement business, including that where the adviser submitting the replacement proposal is not the same adviser who originally placed the business.

This policy proposal is to be the subject of a three-month industry consultation process, during which the FSC will be seeking feedback from all stakeholders on this, as well as its two existing initiatives, announced in 2011, which propose:

  • The removal of takeover terms for a policy or group of policies that are transferred by an adviser between insurers
  • The establishment of a consistent adviser responsibility period across the industry of two years, with 100% commission clawback if the policy lapses with an insurer within one year, and 50% commission clawback if the policy lapses with an insurer during the second year

We have already received substantial feedback in response to the FSC’s policy announcement, most of which we have been able to publish, and most of which speaks against the proposal (see: FSC Churning Announcement…).  Major themes to date include calls to ban advisers who churn, but not to financially penalise the vast majority of advisers who do not practice churning (however, the FSC argues that other remuneration options would still exist for the adviser to supplement the level commission, such as fee for advice).  Other arguments relate to the impact of the soon-to-be introduced Best Interests statute, which many advisers argue would dilute the need for the FSC’s restricted commission policy.  Others argue that life insurance companies will be the only ‘winners’.

But on the other hand, one adviser has commented:

“… insurers are commercial businesses. When we change policies within the first 3 years (or so), it can’t be very profitable where upfront comms have been paid. I agree that it is not necessarily ‘churning’ but it is a problem that ought to be solved.”

We  would welcome your vote on this question and also your thoughts on this controversial subject…

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8 COMMENTS

  1. Personally, I have been predicting this since 2007. The only advisers who would realistically be affected are those who rely on the upfront revenue to sustain their businesses because they don’t have sufficient client numbers/growth for trail to support them. Clearly most advisers who are against this don’t realise that level comms would help raise the ongoing revenue of their business. There will still be plenty of clients out there to offer new and/or increased cover to.

    One of the major benefits to clients is a potentially better claims outcome because they have held their policy for such as long time. When moving policies, clients sometimes forget to mention previous medical incidents that happened years ago which could compromise their claim on a newer policy.

  2. I see all the headlines focused on the word ‘churn’ but there can be a number of reasons to have too replace existing business, no matter how old it may be.
    1/ Tax implications created because of ownership. This is a classic example of the client being totally advantaged by a rewritten contract.
    2/ Where existing cover needs to be placed in a SMSF. A change of ownership cannot be done it must be rewritten. Churned!
    3/ Price increases on a book of business that the manufacturer feels necessary because of claims ratio’s but where a ‘healthy’ client can move to a market priced product but other clients are trapped because of changed health or occupation, thus driving the price up again.
    I have not canvassed all the reasons that a rewritten policy is in the best interests of the customer but the broad brush accusation that all rewritten business is bad is not true.

  3. It must be a bummer all these major life co’s and fund managers did n’t want to be responsible for us. Now they have their way they cry if the business they designed doesn’t hold up against the opposition AND SUDDENLY IT’S THE ADVISERS FAULT.WHOSE FAULT WAS IT THEY COULDN’T GET TAKE OVER TERMS INTO THE MARKET QUICK ENOUGH.
    wHAT ABOUT THE FUDICIURY DUTY WE LEARNT SO MUCH ABOUT IN THE RECENT PAST?AmI not responsible to make sure a client has the best available or close.Or should I ignor that duty because some bloody life company will get it’s nose out of joint because it cant do it to some other company fast enoughwith it’s take over terms.
    I have a client who has an old legasy product from a company owned by abc bankor it’s assoc. It GETS NO UPGRAIDS, IS ABOUT $120 p/m dearer than the inustry to 65 and has only one redeening feature , it is a lifetime contract and he is an A catt. client in the policy. I am unconvinced of the value of these contracts as they only suit a very few people who work that late in life and I am one of them.
    Why should I be penalised for offering him a choice.JG

  4. What a minefield!
    Every week we see instances when making alterations in the client’s best interest that would be caought up in this issue. Leave the issue alone for God’s sake- it will become another FoFA debacle where the good advisers will be kicked in the guts and the bad will just find another way. The industry knows who is doing the wrong thing- put a blow torch on them rather than tarring all and more useless red tape.

  6. Geez they make things difficult. Just simply make a 3 year responsibility period. I got no problems with that, as would all in our industry. The FSC have stated they beleive only a small minority churn. Well if that is the case stamp it out with a 3 year period. If a small minority are churners then nearly all of us are consciencious advisers. et us deciede what is good for our clients. There are occassions when business has to be changed, maybe in those cases level commission within 3 years would work.

  7. This would have to be in responce to the “best interest” clause coming through FOFA. Insurers know that reviews and best interest will effectively force many advisers to move clients out of the old legacy products and into fresh products which will slay profitability. If your reviewing a client you wrote 2 years ago and upon review the insurer has since closed that book to new business it’s going to be in the best interest of a client to move them. They know this, they are scared of the churn it will bring, especially among the less skilled risk advisers who don’t understand insurance and use research houses as their sole decision making process.

  8. To a degree the insurers only have themselves to blame. They ‘upgrade’ their products annually and very few of them build in any real longterm inceentive to maintain the exisiting cover. Upgrading a client to a policy with better conditions and/or cheaper premiums is not churning. It should be acting in the best interests of your clients.

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