The Financial Planning Association has formalised its position on the life insurance sector, calling on insurers to report known churners to the regulator.
The FPA issued its ‘Life Insurance Blueprint’, along with a consultation survey, to members this week, seeking their feedback on the proposals, which will form the Association’s official response to Government.
Among the ten recommendations included in the Blueprint is a proposal to establish a system where life insurance companies are required to report financial advisers that are churning insurance policies to the regulator for review. The FPA says this element should be incorporated in a life insurance code of conduct.
It is our view that the upfront work is often four times more than annual reviews
The Blueprint also formalises the FPA’s position on life insurance commissions. The FPA believes in the retention of commission for life insurance advice, and that the commission needs to be paid at a higher rate initially, reflecting the costs of providing initial advice and implementing cover. This rate should be offset by a lower ongoing commission rate, allowing consumers to access review and advice and encouraging retention.
‘It is our view that the upfront work is often four times more than annual reviews. Therefore an upfront payment capped at 4 times the ongoing commission payment would be appropriate,’ the FPA said in its Life Insurance Blueprint.
Among the other recommendations put forward by the FPA are:
- A two-year responsibility period
- A three-year transition period to move to the new commission model
- Life insurance product innovation which enables advisers to dial down commission and implement a separate adviser fee
- A ban on all other forms of conflicted remuneration including volume based payments, rebates and shelf space fees
- Removal of heavily restricted Approved Product Lists (note: the FPA does not specify a desirable number of products)
- Life insurance companies to pass on savings in the form of premium reductions and sustainable pricing across all channels (retail, group and direct)
- A requirement for advisers who provide risk advice to complete a specialist accreditation, and be provided with guidance on best practice, to be supplied by professional associations.
“The FPA Blueprint is based on conversations with the Board and members to date, and seeks to further collaborate with members on key matters,” said FPA CEO, Mark Rantall.
“The Government has given the industry weeks not months to sort out its reform position for the life insurance industry. Our aim is to drive a competitive, professional, and ultimately a valuable service to Australian consumers, in what is a critical service to the public.
“The FPA wants sustainable change in the life risk sector through higher professional standards and by improving the public perception of the life risk advice service offering.”
Mr Rantall said the system should promote consumers’ best interests, by allowing advisers to give their clients the best advice for them, without being limited by things like APLs or conflicted payments.
“We also think that providing better training and guidance to planners who provide life insurance will improve the quality of advice,” Mr Rantall added.
The consultation survey will be open for a week.
Mark, seriously ?
Point 3.. the ability to dial down commissions is already available.
The only problem is the client receives little benefit.
For example with one major player, you can dial down to 50.0% initial/ongoing commission and the client benefit is a 15.0% reduction of premiums up front and ongoing.
The premium reduction is heavily subsidised by the adviser but clients receive very little in return.
Finally here’s another issue.
We recently wrote a client for $2m of life cover in superannuation on a Nil commission/ Nil fee arrangement in the client interest.
We are now advised that the group life rates for that company are going to increase our clients premiums after 2 months by a whopping 85% on July ,1 2015.
We now have to consider re-arranging our clients cover with the retail section of that same group underwriter and based on the new Group life rates will save our client 24.0% ($400 p.a.) and we will receive 50.0% initial and ongoing commission.
Would we have done this otherwise, the answer is ” no”… but life companies as for most of us that have been in the industry often lack morality or loyalty to existing clients.
Finally Mark, I am not a serial churner but given this scenario, how am I not acting in the client interest at every point of this exercise ?
I agree with Alleycat. Is it considered churning the insurance company you have placed your client increases their premiums by 10%, 15%, 30% or 85% and as such you move your client to a more cost effective policy (assuming no benefits are lost)?
Secondly, standardised medical questions across insurers along with the forced sharing of medical information. The client should own the medical information and their full medicals, application and underwriting should be released to other insurers at the clients request.
Change is obviously provided in the insurance area and I welcome some of the ideas being put forward. I would like to understand more the actual ‘churn’ rate, and the FPA’s criteria that identifies a particular adviser as a churner
And how are the FPA or the Life companies going to know whether an adviser is “churning” as apposed to acting in the best interests of the client for them to report the adviser to ASIC? Seems like we’re going back to the “witch hunt” period of the 1400’s!
If an adviser’s files are being audited each year by their dealer group then it should be “policed” at that level first and foremost! If it’s then deemed to be a “churning” case then it should be reported to ASIC as a breach! FPA, all you are trying to be are relevant by giving us your rhetoric on how these issues should be fixed! I cannot understand why things that can be fixed in a simple way are simply complicated to suit the life company’s and the banks!
I agree Glenn.
Despite all the rhetoric around churning I have yet to see any organisation provide a definition of what constitutes churning. Its about time that the regulators or Insurers actually prescribe a detailed definition as to what they believe constitutes churning rather than continually flog the term around again and again trying to tarnish the reputation of all Financial Advisers.
With respect to the FPA blueprint they have made a suggestion that upfront commission should be 4 x ongoing but no reference to what those percentages would be. Are they suggesting 40/10 or 80/20. There was no detail on this in the FPA communication I received. The FPA then wanted a survey completed to comment on something that lacked important detailed information.
I would also like to see a copy of the FPA analysis that shows upfront work for risk is 4 times ongoing. In my 40 plus years of providing advice and especially under FOFA there is about 10x the work upfront compared to reviews.
FPA still doesnt get it! The companies know who the serial churners are. When they stop making bonuses for getting their turn at the churners favour then they can ensure a level commission is paid to these churners.
Until then grow up providers, FPA et al Stop trying to get the regulators to do YOUR job for you. This may be one of the great cons of all time, unbelievable!!
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