Call for clearer life insurance churn definition


Industry discussion in relation to what constitutes 'churning' in life insurance needs to be replaced with a debate on a sustainable remuneration model for switching policy providers, according to TAL chief executive for retail life Brett Clark.

The insurance industry should "embrace the fact that a financial adviser may switch policy providers based on customer needs, as it is a core part of the adviser's value proposition", Clark said.

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According to the latest DEXX&R research, the average industry annual attrition rate of life insurance policies has risen to 15.4 per cent as at December 2011, a slight increase from 14.3 per cent the previous year. 

The study found Aviva (National Australia Bank) had the highest attrition rate with 17.9 per cent, followed by CommInsure (17.1 per cent) and TAL (16.6 per cent). The attrition rates include all discontinued policies as a percentage of in-force premiums.

Clark said customers move between products all the time and he does not necessarily believe introducing a policy enforcing level commissions on life insurance products was the answer.

"It is a question about what is the most sustainable and appropriate remuneration structure for our industry and that's the conversation we need to be having," he said.

According to DEXX&R managing director Mark Kachor, upfront adviser commissions and the 12-to-18 month responsibility period of most policy holders is still "a structural issue within the industry".

Although Kachor conceded that there was a clear financial advantage to rewriting business after the responsibility period had expired, he said discontinuance rates had a tendency to increase during recession-like periods - and this might be one reason for the increase in attrition figures.

Synchron director Don Trapnell said insurance companies should be asking if replacement policies were in the best interest of the client, and he did not agree that attrition rates were a good measure of churning in the industry.

Regarding the Financial Services Council's (FSC's) proposed policy on curbing churning, Trapnell said that it would "discourage best practice and it shows no reality in their (the FSC's) understanding of the workload and workflows that are necessary for an insurance adviser to advise his clients".

Col Fullagar, RI Advice national manager of risk insurance, said insurers should provide incentives to promote and encourage best practice by planners with, for example, low lapse bonus.

Clark said he would like to think the industry was mature and professional enough to discuss what was the best way forward.

"Shooting this issue off to be legislated is not the best outcome for us as an industry," he said.

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