Time for ASIC to clarify churn, once and for all

Was the life insurance industry ever really guilty of “excessive” churn or was churn a means to a politically-motivated end? 

Appropriately defining and quantifying life/risk lapse rates and how they define the extent of churn needs to be settled before the Life Insurance Framework (LIF) can be accepted by all the industry participants.

Life/risk advisers could be forgiven for being confused about what the Australian Securities and Investments Commission (ASIC) really thinks about the level of “churn”, the quality of advice and the manner in which these feed into the LIF.

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Why? Because in multiple appearances before Parliamentary Committees senior ASIC offices have made statements which, on the face of it, appear to be contradictory; at one moment suggesting that churn is not as prevalent as first thought while on another occasion suggesting that life/risk advice remains highly problematic.

Media coverage of ASIC’s statements, particularly in Money Management prompted ASIC deputy chair, Peter Kell to use a further statement to a Parliamentary Committee to insist that the regulator was not confused and that there are still serious shortcomings where the provision of life/risk advice is concerned.

In particular, he claimed that while, “of the broad population of advisers with lapse rates that indicated a higher risk of poor advice, we have chosen 10 in the first instance” that “doesn’t mean that there are no problems elsewhere, that every other adviser identified through this exercise is problem-free or that there aren’t ongoing problems”.

In other words, ASIC still believes major issues exist with respect to advice in the life/risk sector but is not yet in a position to quantify those issues.

All of which would seem to justify the calls from the Association of Financial Advisers (AFA) for greater clarity from ASIC, particularly as the industry moves further through the process of implementing the LIF.

The AFA chief executive, Phil Kewin wrote to his organisation’s members outlining his concerns about the seeming contradictions in the ASIC statements and seeking improved data on the issue of the quality of life/risk advice. 

Notwithstanding its other objectives, ASIC owes it to Kewin and the broader financial planning industry to provide that improved data together with a viable interpretation of lapse rates and therefore some genuine numbers around the incidence of churn. To do otherwise will be to undermine the legitimacy of the changes being wrought by the LIF.

The most senior executives within ASIC should fully understand the continuing anger amongst life/risk advisers at the processes which gave rise to the LIF and the manner in which recent statements made before the Parliamentary Joint Committee on Corporations and Financial Services have raised more questions than they have actually answered.

The reality is that an appropriate and independent analysis of lapse rates and how that translates to the existence of churn should have been provided to the industry well before the Trowbridge findings gave rise to the LIF and until that issue is settled, grievances will remain.

The AFA is not asking for too much when it asks for proof of purpose in policy change and its request should be granted.  




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Every adviser will know that it is not unusual at all to have clients contacting you querying why their risk insurance premium has increased by up to 20%,25% or even 30% in a single year, without ever having made a claim.
For older clients, this means the dollar increase can be very significant and often will place into question the value of the insurance and consideration will be given to cancellation of the cover due to cost, not necessarily due to a discontinued need to have the insurance in place.
With the real value of wage growth stagnating and the cost of living continuing to increase (including life insurance premiums), cost of insurance is becoming a driving reason for client inquiry and assessment.
So, an acceptable reason to satisfy the client's best interest when the client clearly requests their adviser to assess available options that provide comparable quality insurance cover in order to maintain necessary protection, but at a significant cost saving, should never, ever be treated as policy churn and these statistics should never be included within data that ASIC can use to support their agenda.
If a client instructs an adviser to seek comparable options where premium cost is the driving factor, the quality of product is equal and the client is not disadvantaged, this should never be included within any definition of policy churn.
If cost saving is the client's primary objective and the adviser satisfies that objective without disadvantage to the client and the client has been able to continue maintaining the insurance cover required when otherwise it may have been cancelled, the adviser has clearly acted in the client's best interest.
To state that cost cannot be accepted as a sole reason why a transfer of cover from one provider to another is
a validation of client's best interest when the client has instructed to do so, is nonsense.
Churn, should always and only ever be identified when it is clear the client is either disadvantaged or does not gain advantage at any level by the recommendation to change.

The situation is far worse than 'confused' Mike. ASIC have been misleading the media, consumers and politicians in the way they have presented Report 413 (by repeatedly omitting the fact that the investigation was targeted at a small number of individuals who were thought to be at high risk of churn), to push for a political outcome. It is an indictment on the financial planning fraternity that our professional bodies let them get away with this. No other profession would stand for such nonsense by their regulator. Why did the AFA take so long to raise questions about ASIC's behaviour and why is the FPA still silent on this?

Good reporting Mike

I think its time to bring this sad back story into the open

Which life company passed on the details to ASIC ?

Was it the same company that paid a donation to the Higgins Foundation as the ABC have reported ?

Did they then sell 80% of their business to the Japanese ?

Was the sales price higher due to LIF ?

Was an executive paid a bonus and will it be subject to BEAR ?

Do the new international life insurers need LIF to run their business in Australia or can they manage their affairs profitably as they do around the world ?

Will self licensed advisers refuse to write new business with any member of the FSC from next year ?

20000 advisers have been slandered and we want justice !

I'm very angry about this !

There is a LIST of churners that all the insurance companies have, if someone got a copy of that it would blow all this out of the water! They know who churns as they only offer them level premiums this is fact Angry. There are 15 advisers in Australia on this list this is also fact. 15 out of 15,000! You speak to any insuranceBDM and you can tell they are lying if they say this list dosent exist. Most say yes we know but ASIC never asked us for that list!!!! No sheet! Any ASIC person could do some investigation, pretend you are a adviser at a conference and speak to the insurance BDMS, its not hard! This was only ever a red herring , it was a damn good one as its done what was intended, pushed advisers out of the risk space. Its not just the lower comm..its the 24 month clawback thats the killer. Thankfully the FPA is starting to put some pressure on, we also need the AFA to do the same, and the AIOFP etc etc, we need all of them to band together and tell the true story here. This would help us a lot, aussies like those that stand up for themselves, they dont people that just lie down and take it , so we need to fight back, and hard.

'Angry' I agree and good questions. A simple solution to this is for ASIC to hand all their 'churn' findings and data over to a completely independent third party like PriceWaterhouseCoopers (PwC) for analysis that quantifies the issue in relative and commercial terms.

If there are a large number of advisers that are a pack of cheating lying churning scum, then they should individually be removed from the industry, which would be a pretty clear message.

If on the hand as I believe is the case, it has been found that there has been deliberate deception by ASIC heads, and corroboration and any untoward coercion by the FSC, both should be held completely accountable and those heads should roll.

And C. I agree with your BI statement.

Insurers record a number of scenarios as a 'lapse' including situations where a client opts out of annual indexation or reduces the sum insured of their own volition or on the advice of an adviser. We review our client's insurance needs every review and make adjustments as required. It is common to recommend a reduction in the level of cover as the clients' circumstances change. For example retirement of debt, children no longer being dependent etc. There is absolutely no financial benefit to an adviser to recommend a reduction in cover. In fact it is usually detrimental to our revenue position. The fact of the matter is that such a recommendation is in the client's best interest which I thought was the goal of our profession. The insurers know they are being misleading, but don't seem to care (multiple BDMs confirm their employers record lapse rates incorrectly). I understand that ASIC is relying on these statistics which is very troubling. Our associations need to get on the front foot as our advocates in this area NOW!

I'm not saying that churn isn't happening. It is, and those so called 'advisers' need to be booted from our profession.

Thats the thing, the compliance auditors know who churn, the licensees know who it is that churns and the Insurers know who it is that churns.... Yet none of these parties do a thing to stop it! It shouldn't be that hard to identify the ones who are not doing the right thing.

This issue goes much further than ASIC's incompetence and misinformation. There has been also been corruption misinformation from the FSC to get the LIF passed and this was nothing more than a profit grab (note the FSC has suddenly been very silent on the LIF after being caught out on actual "churn" numbers with accurate information only being passed onto ASIC after the LIF was passed). And then of course the complacency by the AFA and FPA who are sponsored by the very same FSC members
Risk advisers are rightly angry and the LIF will also have devastating effects on customers being unable to afford risk advice in the future.
We have seen nothing but untruths, misinformation and blatant corruption by the FSC and it needs to be investigated.

It becomes even more interesting when Electoral Commission political donation data reveals that the FSC directly donated to Kelly O'Dwyer's electoral seat of Higgins in the form of 2 donations to the Higgins Electorate Conference on 26/06/2012 and again on 23/08/2013. These donations weren't noted as being made to the Liberal Party, but directly to the conference itself and O'Dwyer has held this seat since December, 2009.
So, the FSC has been a direct financial supporter of Kelly O'Dwyer's seat of Higgins and the current Minister for Revenue and Financial services has been a beneficiary of the FSC's donations via their financial support of the Higgins Electorate Conference.
Whilst these donations are entirely above board, it cant escape the scrutiny of the intended purpose.
Between 2009 and 2015, the FSC has donated $537,081 to political parties.
Between 19th April, 2016 and 6th June, 2016, when Malcolm Turnbull had announced the Federal Election in early May, the FSC donated 60.63% of the total year's political donations in a space of only 8 weeks, prior to the election on 2nd July, 2016.
Do political donations result in gaining access and therefore influence?
Do political donations contribute to skewed and misaligned legislative outcomes?
Could it be possible that the whole concept of policy churn and the Upfront commission conspiracy may have been influenced by agenda and influence , rather than proven fact and reality ?

Mike Taylor & money Management, C.'s comment above is a story I am sure all your readers would be extremely interested to read further about!

Don't forget that also she is married to UBS investment banker, Jon Mant, and that more recently it's alleged in May this year she used that same Higgins Federal Electorate Conference funds to poll her electorate on their sentiment, mainly about her.

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