The Australian Securities and Investments Commission (ASIC) has indicated it will make public the data it gathers from life insurers about churn and lapse rates stating the publication of such data would reveal if the proposed Life Insurance Framework was putting an end to churn.
ASIC also stated it would use the data to gain a wider understanding of the life insurance sector, particularly in regards to product distribution models and the overall impact of the LIF changes.
ASIC made the statements in its Consultation Paper 245 – Retail life insurance advice reforms, which it released for comment and which details how the corporate regulator will set commission and claw back levels as well as listing the type of data it will collect to inform its slated review of the sector in 2018.
ASIC stated it would gather data twice yearly on life insurance sold through personal and general advice or via direct channels and would seek a wide ranging set of information from each insurer under existing authorisation in the Corporations Act.
According to CP245, ASIC will gather information on both policies and remuneration and may request data up to five years old. For policies this may include:
- how many policies are in force;
- when each policy began;
- how many policies are held by people insured for the first time;
- how many are new or altered policies sold to existing clients;
- the type of policies (such as life, total and permanent disability, trauma, income protection and various combinations of these);
- the premiums and sums insured;
- how many policies have been exited and the reasons for the exit.
For remuneration data ASIC stated it would seek:
- historical data on commissions;
- the type of remuneration model adopted (such as upfront commission, hybrid commission, level commission, or no commission);
- the level of upfront and ongoing commissions being paid;
ASIC would also seek data around lapse rates and clawback amounts, including the level of lapse rates, the reason a policy was existed and the level of clawback applicable on a lapsed policy and planned on gathering all the above information from 1 July 2016.
The regulator stated the information would be made public, without identifying details, to “provide information to the industry as a whole about the impact of the reforms” but sounded a warning about adviser behaviour during the three-year transition period.
“We want to see whether advisers are rewriting business for their clients in order to get the (still relatively high) upfront commissions in the transition period, or whether the reforms are effective in removing the incentive to rewrite policies, and in creating a better environment for advisers to give good quality advice to their clients”.
This is an excellent initiative by ASIC. I very much look forward to being able to see the data. It would be very interesting as a researcher but it will also allow stakeholders other than insurance companies to know what exactly is happening with churning, lapses, modifications and commissions. This will make for a much more informed dialogue between legislators, insurers, advisers and consumer groups.
Go ASIC!
This will only be of benefit if the data ASIC releases is separated between policies issued through direct insurers and those where advice was obtained via a licensed risk adviser. I would challenge them to ensure that is the case so the public can get a true picture of what is happening.
WB you are right. The granularity of the data will make this a successful initiative or otherwise.
Unfortunately, the data collected has the key ingredient missing…… the reason for the lapse/cancellation which has not accurately been done thus far. Thus, insurers are going to have to obtain accurate reasons for lapse/cancellation otherwise the data is all but useless and will provide erroneous assumptions (rubbish in…. rubbish out). As it stands, ASIC will consider all lapsed policies as potential churn and the justification for further draconian measures.
The whole debacle (LIF) has been trumped up from the outset with incorrect and inaccurate data, minimal sample size based on a specific section of policies and clear and obvious political and FSC agendas. Ironically, some of the problems stem from a ridiculous system which requires comparison software such as IRIS to justify changes which in turn form the basis for making changes. Are some of the minor differences including price justification?……. in many cases… No! In any event, it is subjective in nature. Some argue that saving the client $10 p/mth is justification in itself and would be in the best interest of the client. Perhaps so for a low income household….. but otherwise?
Rob, this is an anonymous contribution that looks quite emotional to me. Is it worthwhile to do so?
To answer your point about the value of the numbers – I don’t know how get conclusive data why a policy lapsed as this is simply not recorded or I would have little confidence in that piece of data if it was recorded but if you have data as detailed as described in the article, then there is a LOT you can do with some statistics.
My concern is probably the same as most people. How do insurers define churning? If it is just lapse rates then we may be getting blamed for things that may be out of our control. I don’t disagree with the sentiment but the semantics of this will be important as ASIC have been given the powers to regulate the commission in the future. If they get data that is not split out properly, we could be in for a further reductions in income.
Incidentally, I would define churning as moving a clients policy to another insurer for purely incidental reasons. How would an insurer know this? With best interest and changes to insurance in super etc could there be policy movements that are not churning but would be reflected in lapse rates? Absolutely but I can’t see how the data insurers hold will tell that story.
Good in theory. However to work, the information that will be made public, needs to be
based on accurate data and to date, not one Life Insurer appears capable of
providing data based on real life scenario’s.
At the moment, even though Life Companies have recognised around 38 different reasons a policy will not renew, the only data that seems not to produce a lapse report
instigated by advisers, is a claim.
So if ASIC wants data to investigate churn, then the current data collection method is not going to give the correct answer.
ASIC also states they want the data to gain a better understanding of the Life
Insurance sector. This can only happen if the underlying data collection model is relevant.
A crucial element to this, is separate Direct sales, which is a cut down advice model of, “all sale no responsibility” as they do not provide advice or even a SOA, yet receive the same commission as full advice practices.
These guys are the main cause of the problems and it appears based on FOS data, the Life Companies in-house sales people are also a major cause of complaints.
Separate all the advice models, then collect data separately and the result will prove
that advisers who provide a full service model, do a great job, yet we are being blamed and treated as scapegoats.
The ASIC last dot point “How many policies have been exited and the reasons for the exit,” is what has been glossed over and must have every possible reason for exiting in any data collated, or it will have nil relevance.
It would be great if they would also research and release data on how much better off clients are who have quality insurance in place in the event of disability versus those who don’t. That would perhaps actually benefit consumers (and Government).
Here’s an idea…If the insurers want to conduct a clawback after 12 months from an “Advised Retail Client” they must be able to demonstrate that any replacement policy does not meet the Best Interests Duty. Which means that they will need to read the SoA and make a determination. This could then be sent to the Licencee who will have the opportunity to confirm or reject the insurers assertion that it does not meet BID. If Licencee agrees does not meet BID, the adviser can be sanctioned/further training required or whatever they deem appropriate (Breach notice to ASIC). Clawback can then rightfully occur.
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