The clawback provisions outlined in the New Life Insurance Framework are akin to using a sledgehammer to crack a nut, according to Synchron Director, Don Trapnell.
Mr Trapnell, an outspoken advocate for the adviser voice during the FoFA and Trowbridge debates, maintains the proposed three-year clawback provisions are too tough on advisers. While he says they would remove the perception of churn, they are not the only solution to the issue:
“We have not seen any significant statistical data that convinces us that a culture of churn exists in the Australian life insurance industry,” said Mr Trapnell, who supported his contention that the incidence of churning is far less prevalent than sometimes alluded to by other industry stakeholders, by citing statistics from within his own licensee group.
The low incidence of churning uncovered within Synchron has led Mr Trapnell to his argument that while the proposed clawback provisions will remove all doubt about churning, “…it is akin to using a sledgehammer to crack a nut.”
One of the biggest problems with the clawback provisions is inequity
Mr Trapnell continued, “One of the biggest problems with the clawback provisions is inequity – there are times when the adviser has no part in the policy lapsing and yet, under these provisions, it is the adviser who will pay, literally.
“Another huge problem,” said Mr Trapnell, “…is the uncertainty of adviser income – a clawback can occur up to three years after payment has been made. In our opinion, this is simply unfair.”
While he believes clawbacks have the potential to be very unfair, Mr Trapnell noted there is currently no real disincentive to re-write business every second year. “That’s the one criticism that our industry is most vulnerable on,” he said, adding, “We need to find a way of stopping business being re-written for financial advantage by introducing a disincentive – but a clawback is only one way of doing that.”
The problem we have exists because both advisers and insurers are in love with yearly renewable premium rates
The alternative, he said, is to innovate on product shape (see: Insurers Support Synchron Product Initiative). “The problem we have exists because both advisers and insurers are in love with yearly renewable premium rates,” said Mr Trapnell, noting most life insurance policies written in the United Kingdom are based on a level premium, set-term basis, which he maintains will help address sustainability issues, perceived issues of churn, affordability and remuneration structures.
“We are entering a new world of life insurance and we need to think differently about life insurance products. We believe a new product shape will help ensure advisers are adequately remunerated for their efforts while removing all perceptions of churn once and for all,” concluded Mr Trapnell.
I couldn’t agree more with these sentiments and in all of the adviser bashing need for change we seem to have forgotten about the elephant in the room – that is the unacceptable level of premium increases imposed on customers by the insurance companies annually.
AIA Australia who are probably the worst offenders in this have for years had a pricing strategy that discounted early years premiums (and still do) and were undercutting the market on price (particularly in Income Protection premiums) So when their claims increased – they took the easy out option of increasing their customers premiums to compensate (or a cynic might say encourage clients to leave!). We have had customers receiving annual increases of 30%! – and they are still doing it.
They then wonder why clients are cancelling and blame it on churning by advisers. This is the type of practice I would like the CEO’s of these companies being forced to explain and this practice being stopped.
Instead we are seeing an introduction of a 3 year clawback to penalise advisers which will actually allow the insurance companies to increase this practice by recovering profits from the adviser who have lost a client through no fault other than the insurance companies greed.
Steve the 3 year claw back will work against that scenario, if a client receives a 30% increase in premiums in say year 2 or 3 as you suggest, it will be ” in the clients best interest” to move the business. so while there will be a claw back, it will / would be tempered by the new Biz commission, where it would be a real problem is under the Trowbridge 5 year model.
I suspect there will need to be a lot of testing (at our expense) before there is any clear understanding of the potential fallout.
I am wondering how long it will be before a solid legal and binding contract between adviser and client around claw back provisions enters the market place?
We need to remove churners from our industry. They have tarnished our reputation far too long – even before political attention turned onto advisers. They are the ones that have brought this onto all of us.
For the genuine non churners not being disadvantaged maybe the industry needs to look at building in a fee structure like a deferred entry fee which would be charged to the client if they cancel the policy within the clawback period. This way clients would be aware upfront if they cancel the policy inside the first 3 years a fee would be charged on a sliding scale – This would cut out the churners and help protect fair adviser remuneration. Something for the industry to consider?
Some merit in that, Dan. Yes, clients too bear some responsibility in respect of policies being cancelled, thereby triggering a write-back.
But all of this goes deeper than churn. It seems to me that life offices have felt the loss of control they used to have within the life-risk industry and they now want to claim it back from advisers.
Governments have been only too happy to add their weight to it because insurers are a powerful, cashed-up group. These have the clout to make contributions to the political campaigns of either party. Advisers, individually or collectively, don’t have that power.
We can negotiate to get a fairer outcome but in the end it’s unlikely advisers will ever regain the position we enjoyed before all of this started a couple of years ago now.
The 3 year claw back is not only unfair, it is not acceptable.
The biggest cause of churning, is the result of Direct product floggers who use the major Life Companies as a wholesaler and deliberately undermine and undercut quality policies by offering inferior cheap policies.
We have a client who had a “to age 65 benefit” income protection policy with a 30 day waiting period and extra benefits option. The Life company hit him with a 25% premium increase which led him to calling a well known, direct over the phone Company, who sold him a 90 day wait with a 6 month benefit period and all they asked the client was how much are you paying now, without bothering to ask or compare the existing cover.
He told us this and we were able to save the existing policy and we then rang and pretended to be a potential customer and guess what, we got the same story line and to test them, we said “oh I looked at my policy and it says it covers me to age 65”. The immediate response was most people can look after themselves for the first 90 days and most claims are only 3 months so you don’t need to bother paying for the extra.
That is great best interest advice and these direct product floggers do it every day, seven days a week.
A level playing field is all we ask for. Force these companies to do the right thing and then you will see an immediate improvement in long term profitability for Retail Life Companies.
No Life Risk Adviser in Australia should accept a 3 year clawback.
The AFA, FPA and Retail Life Companies need to tell the Government that it is unworkable and probably unconstitutional.
Jeremy, What you’ve said above is absolute GOLD. You have summed it up wonderfully and I commend you for it. The real tragedy, however, is that it is falling on deaf ears. I really hate hearing myself say these words but I have no doubt we are indeed going to lose some of the best advisers due to insurance company greed, politician indifference and arrogance, industry association ineffectiveness and the general apathy of adviser fight-back due to these factors.
The clawback provision of 3 years does it for me. That was the last straw. I can imagine I will now hesitate to write new policies for fear of ramifications if they chargeback in the timeframe, not to mention the ever increasing time-wasting paperwork called ‘compliance’. Just easier not to write anymore, don’t you think? Don’t get me started on the lower commissions too! 3 decades into the game and it sickens me now.
Yep, so much for the best interest of the client – well done life coys, politicians and “consumer interest groups” – you could not have created more of an anti-consumer environment if you had all tried. Sickening.
Touche!
The issue is pricing as Steve has very bluntly stated its not just one company it’s all of them One company increases their rates and the others follow Doesn’t it have a familiar ring to it now that most insurers are bank owned During interest rate reductions by the reserve bank they all took their “sweet” time to pass on the reduction and each time it was a different bank to move first than the others followed
Unfortunately there will be no reductions in premiums only continued increases that will have cancellations tempered by adviser write backs
Is anybody actually listenining to this issue or are they just going to go ahead and let us sink ?
So much for assisting small business
3yr claw back,,thats all we hear..go with the lower remuneration can except that..if have been in the industry for over 40 yrs,,ok those guys that can remember endowment whole life days,we then had a 3yr claw back but also could offer a carrot with a residual value if they kept it going this long,,,with risk no such thing,,12mths today is sometimes too long,getting a client to agree to paying back the comm over 1 yr,but now 3yrs,,would you sign up.i wouldnt? what other job in the world has a 3yr claw back,,hello,,tell me one?you sell your business now there will be a 3yr claw back put on agreement,,even if your retirement,,just great,,,other thing if your client is a smoker i1st,,then becomes a n/s and you change guess what you get a claw back,under 3yr situation,,,?if this 3yr gets off ground the life offices must offer the client/you..a carrot to keep it on books,, the gov wouldn’t do this on the likes of drivers ect,,would road block the streets,,our industry is all individualist…gov not silly,,
The proposed 3 year clawback provision is unworkable, unjust, unfair and unacceptable.
If Life Insurance companies can manage the administration of a 3 year clawback, they can obviously more than manage the acceptance of business from advisers that are known and have a history of churning with all companies.
I have stated before, that if insurers simply refused to accept the business from these advisers the problem would cease, rather than having to penalise the quality advisers.
As we all know with many insurers, it is only a churn if the business is leaving them, not if the business is coming to them, so they are an integral part of this problem.
The 3 year Clawback should not be accepted under any circumstances and should be fought strongly with an emphasis placed on the responsibility that the insurers need to accept.
Here here bloody here!! Well said Craig. Seems so obvious of course to us advisers – why not to the life companies. Any guesses?
“The low incidence of churning uncovered within Synchron has led Mr Trapnell to his argument that while the proposed clawback provisions will remove all doubt about churning”
So Synchron did their own study and found little incidence of churning. This would seem more accurate, industry wide I think. If churning was rife, wouldnt compliance/auditors be reporting breaches left, right and center? This goes to show the “sample” ASIC used for their “study” was not a fair representation of the industry, yet all the vested interest parties take their report and run with it…..
Why cant an ID or tax file number be assigned to every client who takes up a policy, then by embracing some technology you could actually track which ID/TFN seem to be fluctuating between insurers regularly. If this happens it raises a red flag, and more investigation is required. You could actually assign the client ID/TFN to an advisers authorised rep number and get an overall picture of how the adviser moves his clients around between insurers.
Technology should be embraced as an answer! yet we slay advisers income, and basically push people towards direct insurance channels, and their sub-par products, to the benefit of insurers and to the detriment of the consumer.
Hi Guys
Dont worry about a 3 year Responsibilty period, we will survive it.
I joined the industry in 1965, Pounds Shillings and Pence days. when Australia went to Decimal in Feb 1966 all the guys ran around saying we will all go broke, people used to buy a Thousand pound policy will now only buy a $1000 policy -our incomes will half—sheer terror abounded.
Then came Occidental selling Term against our Whole of Life, again we wee all finished if Term took over, well term took over but we all still did rather nicely.
If I change a policy because the client still is paying smoker rates and he is a non smoker and some insurer or other dill says I have “churned” then off to VCAT i go. They have strong powers VCAT, and good publicity when needed.
Remind yourself every day Guys “there is no man with Endurance, like the Man who sells Insurance”—–stay strong
David Ward
What is the advantage of being members of the AFA or FPA when they do not represent us?
Gordon
What is the advantage of being members of the AFA or FPA when they do not represent its members?
Gordon
There’s a lot of people asking that right now Gordon. I don’t have an answer for you unfortunately.
Wow, I have only returned today from extended leave overseas and what I have read so far makes me want to get the first plane out tonight!
The three year clawback is a typical “shoot first and ask questions later!” from the legislators who have no idea of the real world.
One of the first emails to greet me was from a client of 24 months who despite being shown stepped premium projections at the time the policy was effected, has complained bitterly about the second year increase to the point where if I don’t service the client properly I will lose him and by “service” I mean transferring the business elsewhere…..but to the legislators this obviously means “churning”!
For all this I agree with David, we have survived government heavy handedness before and we will again!
The problem of so called “churning” is driven by the insurers insesent addition to increasing premiums without thought of the consequences of their actions
We all understand the need to profit to be successful but the bottom line is we have clients that simply cannot afford the premiums
Not everyone earns $200,000 a year!!
So!! What happens ? They call us to try and help reduce the burdon without the lose of too many benefits ( if where lucky!) Or they ring the direct insurers and take whatever ?$/- they throw at them
What’s next ?? a blapse we have little or no control over as we did not instigate the issue in the first place and the client ends up with something they have no idea about but will at least get them on the job site!!!
How about the insurers cut out the middle man and hold a ” get together” with the advisers and “nut” this issue out
Book Allianz stadium as that’s the area you would need for the response I have no doubt you would get
What about a company that comes up with a real alternative ? Watch the business roll in!!
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