The Financial Services Council (FSC) has received support from the Australian Securities and Investments Commission (ASIC) for its new framework aimed at reducing churning in life/risk sales.
While the FSC's approach has been heavily criticised by some financial planners and advisers, including suggestions that policy churning is much less prevalent than is being suggested, the regulator has made clear its own surveillance work suggests a problem really does exist.
Asked by Money Management to outline its attitude to the new FSC policy approach, an ASIC spokesman pointed to the manner in which churning had shown up in its surveillance activities.
"In the course of recent ASIC investigations and surveillance work, we have seen inappropriate churning of life insurance policies resulting in considerable detriment to consumers," he said.
The spokesman said this churning had included situations where, as a result of churning, consumers had received inferior policy terms, paid more for cover, had health issues excluded, and in some cases had polices avoided at the point of claim.
"ASIC therefore supports industry-led efforts to develop measures to address inappropriate churning in the life insurance sector," he said.
The spokesman said the regulator believed such an approach would ultimately improve consumer confidence and help tackle the issue of underinsurance.
"We will continue to liaise with industry on these self-regulatory initiatives so that we can understand how they are being implemented and applied in practice," he said.
Both the Association of Financial Advisers (AFA) and the Financial Planning Association have supported elements of the FSC's approach, but expressed their reservations about some other elements.
The major complaint among planners has been the progressive clawback provisions applying to commissions when policies are turned over or terminated within the first three years.
The FSC policy approach and planners' objections to it will be the subject of a forum to be hosted by Money Management and the AFA on 12 September 2012.
