The decision by the Financial Services Council (FSC) to drop its controversial churning policy has been labelled a “bittersweet victory”, as ASIC says it is considering whether to take action to address churn.
Speaking to advisers in Sydney last week, Asteron Life’s Jordan Hawke, said the industry had missed its opportunity to demonstrate it could self-regulate, and that the Australian Securities and Investments Commission (ASIC) was likely to take its own action to address churning.
“The FSC proposal came about because Minister Shorten said to us: ‘We’re going to put 20% commission right across the board’,” Mr Hawke said. The Government and the regulators offered the industry the opportunity to address the issue through self-regulation, and the FSC responded by going out to the market and engaging advisers and AFSLs, associations and the life companies.
The FSC issued its original insurance framework proposal in March 2012. Five months later, following a period of industry consultation, a second, simplified policy was proposed. Both policies were met with significant backlash from advisers. Last week, FSC CEO, John Brogden, advised that the Council no longer had unanimity on the approach, and that it would not be proceeding with the policy.
Commenting on the industry’s role in the process, Mr Hawke said that “… it highlighted was how immature we are when it comes down to the challenge of self-regulation.”
… what it’s done is now confirmed to the regulators that we can’t self-regulate
“Advisers have said to me, ‘This is a great victory!’ In fact I think it’s bittersweet. Because what it’s done is now confirmed to the regulators that we can’t self-regulate.
“The regulators are now saying to us, ‘You’ve had your opportunity, but now we’re taking it back’.”
A spokesperson from ASIC said the regulator was “… considering issues raised by recent developments with industry initiatives around churn and the implications for dealing with it,” but refused to provide further comment.
Jordan, your view is that purely of a Life office, thinking again about profit and not the advisers who have supported you in the past and present. It is NOT a fact of immaturity, it is an obviouselife company biased proposition, put forward to safeguard profit and harm advisers for the cancellation of policies, that may be inadequate to clients over the 3 year period.
The reason for the backlash is obvious, or is it that corporates in their comfortable offices just cannot see this?
Hey Jordan, if the Industry truly wanted to self regulated it would have targetted the individual churners and imposed conditions of trade on them, not the silent and well intentioned majority.
I am a big Jordan Hawke fan – he is a great ambassador for insurance advice and is a friend of many advisers. The suggestion that a flat rate of brokerage could be imposed is the problem, I have run a practice and been involved with risk advice for over 20 years – we would have to radically reinvent our business as we would struggle to survice if that were the case. Between FOFA regs, the end of corporate super and smashing the profitability of risk advice – most small businesses operating in financial services who would be finished.
Jordan, I have an enormous amount of respect for you and what you have achieved in the past but this time you are way of the beam.
If anything the shoe is on the other foot, your systems and data was lacking in accuracy and as suggested your focus is profits not clients.
This whole topic is a deflection by Insurers to address the real issue and admit that they may have their pricing model wrong, but don’t put the blame on all advisers.
You are in the best position to address churning yet you are all blinded by the desire for market share and profits.
Stop blaming all advisers and get on with the job, the real facts would show that churning is not your biggest issue.
You have the tools to correct this issue, the question do you have what it takes to lead.
Jordan Hawke is correct that we have failed to effectively self-regulate.
However, it is not for the life companies to regulate the planners. Certainly, they are well within their rights to protect their commercial interests by taking appropriate action against the churners. In my opinion, the FSC proposal failed for two main reasons: (i) it was an overly simplistic solution to an unquantified problem and (ii) it was a solution proposed by one sector to regulate another and not self-regulation.
Unfortunately, self-regulation will be next to impossible whilst planners are not required to be members of a professional as practitioners in other professions are.
As for ASIC, they have the power to address churning already. All they have to do is enforce the legislation to know your client and know your product and to have a sound basis for your advice, including advice to switch products.
mmm, so why not just have one insurance Company, government owned, that provides cover for all. That way there will be no churn, no dishonest advisers, no need for annual reviews of insurance in terms of product or cost and the pigs can fly! How ridiculous that the regulators (obviously encouraged by certain Life Offices) think that they can solve all the world’s problems. Insurance Companies fall over each other to get market share through better definitions and pricing, but heaven forbid if you cancel a policy and move it to where you believe your client is better served. Message to Insurance Companies – you could always stop churn by standardising definitions – but wait, isn’t that called “collusion”? Stop whining!
Jordan- you talk of industry consultation but the draft policy put clients and advisers last and conveniently, profit first… WTF! The people behind all this (regulators) are a complete joke- FOFA as example serves only the banks and industry funds- again client and adviser last!
The real problem in our industry is Greedy insurance companies that will take business any way they can- fully endorse direct (no advice, TV & internet) business & award advisers that shift their book. Also industry funds that win/hold business by denigrating hard working advisers.
How about this industry put advisers and clients first for once. Stop this red tape and meddling and put advice first (compulsory even) …. let common sense and market forces prevail!
Agree with all the comments made above, I have been in this business for over 25 years and am just about over all the threats and nonsense that we are copping from all sides. So called “churning” is NOT the major issue out there at present as someone has already said. So Jordan, how about the life companies coming up with some solid facts and evidence and if it IS a problem for you, speak to and deal with those doing it! You know who are doing it and so do BDM’s. Do not put us all in the same basket, most advisers act in the best interests of their clients and I’ll tell you what, if they don’t then it will come back to bite them hard, as it should. The last thing any of us want is a bunch of overpaid bureaucrats coming out now with their “solution” and dictating to us how to run our businesses.
Agree with the above comments. The BDM’s that I have spoken to have made it clear that the insurers know who the churners are, so Jordan, why doesn’t your company & all the others, self-regulate & put a stop to these churners?? It’s the easiest way to do it, but I guess it may affect your market share, so why not just tread on the Advisers a little more while they’re down!!
Jordan, I can tell you now, that if a group of professional advisers, who were 100% compliant in the advice process and were acting in the best interests of their clients were to place $1million of new risk business premium with Asteron in a year,Asteron would happily accept that business and jump for joy in the process.
They would accept that new business without concern as to whether that business had been placed with another insurer 2 or 3 years earlier.And they would know that detail as the requirement to disclose current or replacement business is an integral part of the application.
The insurers know who the serial churners are, the BDM’s know who they are, so it is ridiculous for you to continue insinuating that the advisers (under the guise of the term “industry” ) can’t self regulate.
What you are really saying is that the advisers (ie. the people that pay your substantial salary) would not accept being stabbed in the back by the same insurers who will take them to lunch if they produce enough business for them.
The insurers could simply not continue to accept business from serial churners, who were acting in their best interests, rather than their clients.Simple fix really, but the temptation for profits,targets and budgets keeps driving the greed train.
The only bittersweet part of this is that Jordan promotes himself heavily as a friend of the adviser, but then supports a maligned strategy which potentially penalises honest,professional advisers.If you sit on the fence for too long, eventually you will fall off.
And as for Bill Shorten,Labor’s Jack Russell attack dog,what he should concentrate on is the shortening distance to the horizon because he isn’t going to be wielding his baseball bat for too much longer.
Jordan – that nicely worded speech is brilliant for an uninformed member of the public. Unfortunately, to any person in the industry that does not have a self interest in increasing the profits of a certain life company, it’s a blatant display of sour grapes. It’s also incredibly disrespectful to advisers to make the assumption that we are that stupid & gullible to believe we have ‘missed its opportunity to demonstrate it could self-regulate’ and now big brother is going to come & smack us all on the bum. No-one really believed the initial churning proposal was anything except a life company driven attempt to increase their profit margins at the expense of advisers & clients. Sour grapes indeed!
I was of the opinion, that despite the indusrty objection to the policy, it was the ACCC who squashed the FSC policy as they should have.
The issue still remains that John Brogden at the Money Management breakfast last year could not provide acurate statistics on churning and I’m still of the belief that it is a small problem and can be fixed by the insurers outing these advisers.
Policies get changed in the best interests of the clients and usually because the current insurer either hasn’t remained competitive in price or upgraded their contracts to provide market leading definitions. Particularly when they close a series of product! This is not a churn, it is acting in the clients best interests and isn’t that what FOFA was about.
I think Minister Shorten needs to better understand the life market place before acting further and in particular understand the cost of advice.
I also think the insurers and FSC should look closely at themselves before they start casting aspersions on the adviser market place. Most of the problems they are protesting about have been caused by themselves.
Jordan at your Melbourne presentation, you said the issue was about sustainability, not churning. I’m so disappointed to hear a life insurance office bring the whole topic back to churning.
Real “churn” – where a client’s policy is moved for NO OTHER REASON than to give the adviser another bite at upfront commission – is rare; some have estimated around 1%. In fact, the FSC breakfast/Money Management forum in Sydney last year that I attended showed the insurers and the FSC don’t don’t actaully record and measure the reasons behind policies being terminated. So how can we solve a problem – whether its churn or sustainability – when we don’t actually know whats causing it.
I hope the other insurers don’t jump back on the churn bandwagon.
Does Jordan know something we don’t. Which life risk advisers did the FSC consult, and what was the timing of those consultations. Hands up !!
I understand AFA & FPA ( please feel free to correct me )invited themselves to the FSC table after the event. I know of no adviser who was consulted ( after the event ) by FSC.
ASIC never telegraph their punches, but are prone to adopt a “heads on poles ” approach to scare off the natives. That means they are probably already talking to life offices asking them to identify the villians.( aka former life office heroes )
As risk advisers have been saying for years, the life offices know who the bulk churners are, but, sadly, those same life offices who have been the victims of recent churning will welcome back those very same advisers if the business came back in bulk.
Hypocrisy in bucket loads !!!
Its called commercial reality. BDMs have targets !
Advisers don’t get paid for the work they do for the many clients that are not persuaded that they need to protect themselves rather than rely on the government nor do they get paid when the increasingly unhealthy clients get declined by insurers. If advisers face the risk of not getting paid for the business they honestly put through, they would not bother. They have to get paid either by clients (who don’t want to pay for risk advice and grudgingly pay insurance premiums after a lot to time spent convincing them they need it) or by the insurers who now don’t want to pay either. Insurers will then pay television stations to advertise their products and they have to pay for this whether they get business or not. If people bought and kept renewing their insurance, this method of distribution would have been done a long time ago. All the people who make comments about paying a flat 20% commission have no idea of the cost of doing business – they must work for 6 months as a risk adviser / sales person to understand what it is about. Don’t think Shorten or ASIC personnel would work for no pay. As mentioned previously, it is quite easy to find advisers who are not acting in their clients best interests – the reason for the switch to another insurer has to be documented in their SoA.
Jordan Hawke makes a comment that the Industries role highlighted how immature we are when it comes to the challenge of self regulation.
I hope he is talking about some Life Companies and the FSC, as the proposals put forward by the FSC, showed not only a lack of understanding of how the Life Industry works but more disturbing, a total lack of Interest in finding the real causes of policies lapsing, of which churning is a still unknown portion of business exiting.
From all the handwringing and copious discussions it appears no significant measure or clarity of what percentage of policies lapsing is ‘churned’.
Jordan even making a “immaturity” comment like that shows a naivety of how Government think tanks operate and how the self serving interest groups will jump on his comments to prove that the only way forward is for more Government interference, red tape and beurocracy that will not help but hinder the Life Industry.
I have said from day one that the best way to find out why policies go off the books, is to ask the client.
Make it a standard for all clients that before the company proceeds with the cancellation, the client needs to tell the reason why.
Life Companies are spending millions ringing clients to try and save the Business once a cancellation notice comes in. It will cost no more to say to the client if they still insist on cancelling, “we need to enter the reason and then we can proceed with the cancellation”.
There are usually standard reasons and all companies should have a standard form that will be filled in by the retention team and all data collated from all Companies so accurate information is attained.
Some examples of points that can be used that will show why policies lapse are:
1. Price increases in excess of inflation at renewal time
2. Cheap phone or online offers
3. Changing personal circumstances e.g. loss of job, retirement
4. Employer funded cover
5. Insurance offer in Superannuation took up
6. Can long longer afford
7. Adviser switching client to better contract
8. Insurance company or Bank employee switching
9. Adviser switching to cheaper policy
10.Other reasons (client give details)
Within 12 months the industry will then have accurate data and can then make appropriate changes based on facts,not heresay.
What a hypocrite Jordan Hawke is. How about you lead the way on this Jordan and refuse to accept any new business that was written elsewhere in the last three years.
But you wouldn’t do that would you Jordan ? that might impact on company profits and reduce your individual bonus on business written.
Come on Jordan lead the way.
Here we go again….. the life offices cannot even keep meaningful stats to prove their arguments about lapse rates…. How can they agree when they are competing forces…
Look internally and cut the waste on BDM’s other hierachy and corporate bonuses for market share at all costs and then we may have a sustainable industry. I’d like to see Bill Shorten run a business that is so onerous on compliance on 20% of the average premiums!! One good outcome may be the online “sell anything to anyone without needs assessment” businesses will be wiped out, along with the insurers bare bones products…. and that will improve the lapse rates. Yeah full advice can prevail.
Shorten will be gone on 14/9/13 so his misguided union centric industry fund driven agendas no longer matter. To Jordan and Asteron how about being part of the solution and not part of the problem (or is it really a problem?) by publicly stating that your company will no longer accept any new business from those scallywag churners known to your company and the other insurers? I suspect that commercialism and Asteron shareholders would stop you from doing this?
Perhaps the insurance industry, and other industries, needs to regulate the regulators? I am sure that would be widely supported and not require the establishment and expense of another regulatory authority to wield a big stick in matters they do not fully understand. This would help put the Government’s collective mind at rest knowing how much more effective it would be in improving the efficiency of many industries that are far less so since being overburdened with a growing amount of time wasting, unproductive paperwork. The elected representatives could then set about understanding and correcting the deeper systemic problems underlying our decline, such as out of control public and private debt as a result of a flawed private banking system and a lack of legislation to control their activities. We have seen a steady decline in our economy as regulation applied in the wrong areas has increased and instead of helping protect and allow the entrepreneurs, business people, workers, their families and the rest of the Australian people to do what they do best and help in each of their ways to create the wealth of this country which has steadily declined as unnecessary and mis-directed Government interference has increased.
Self regulations on churning who does the regulator think it is GOD? I’ve seen insurance companies refuse to deal with serial churners and even cancel advisers agreements keep your nose out of it ASIC churning is a word the ASIC has invented a ghost saying its a problem well it’s not its only s problem to you ASIC simply if it does not disadvantage a client then what is the ASICs problem? Is the ASIC turning into the EGG BOARD? The insurance industry regulates through FOS perhaps giving them a hand instead of increasing its work load would be a good idea
if a client receivs a better priced policy with better benefits this year & every other year the client has a better outcome the advisor gets paid & the new Insurance company who accepts the policy all win.ASIC should make sure they protect clients first NOT protect upset Insurance cmpanies who loss business because they will NOT give clients better pricing & better benefits automatically.
what about the churn when rollover super to Union funds with risk insurance involved is any different is this NOT churning aswell…but no mention from Jordon Hawke or ASIC or FPA or AFA or FSC about all this Risk inssurance churning inside all these rollovers to UNION super funds
Socialism regulates and controls the means of production, distribution, exchange and centralization. This is what the Labor party is all about, to the detriment of the individual.
FOFA , commissions and churning are in the regulatory framework of the means of distribution and if Labor, Shorten and ASIC don’t understand these issues they will regulate anyway, as they are authoritarian and think they know what is best for us regardless of the consequences.
We need to attack Labor and their ideology otherwise they will keep doing what they have been doing. Putting them out of office at the next election would be a good start.
We need to keep up the protests even after the election because the Liberal party will have an enormous task unravelling all the oppressive regulations for this and just about every other industry.
In the spirit of dialogue, I would be interested to know what ‘self-regulation’ could look like. If Hybrid was the only option, would it make things more sustainable and still be acceptable for all parties? As an adviser, I would be happy with that.
Aaron,just like life,everything good,bad and indifferent in our Industry will be determined by who writes the regulation.
If it is handed over to the lawyers,then we are all doomed once again to over complexity.
If it is handled by beaurocrats or inhouse people who have never worked at the coal face,
we will still end up with an unworkable position.
It would be nice if we first got relevent and accurate data,then involved only people who can contribute in a constructive manner based on experiance and a good dose of common sense.
Then we can come up with solutions that will benefit all parties including the Life Companies who are within their rights to aim for sustainable long term profitability.
If an adviser re writes a 20k policy 4 times in 6 Years and earns a collective circa 80k and each time justifies the switch via better policy defs (subjective)and premium rates (marginal) do we support that as good practice or is he a churner?
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