The use of claw-back provisions to eradicate churn from the life/risk sector amounts to using a sledge-hammer to crack a nut, according to Synchron director, Don Trapnell.
Amid growing evidence the claw-back provisions contained in the new Life Insurance Framework (LIF) represent the biggest challenge for many life/risk advisers, Trapnell suggested there were better ways to achieve such outcomes including better product design.
In doing so, he preferred the UK-style level premium, set-term approach as an answer and said Synchron currently had such a structure out to tender with the major insurers.
“One of the biggest problems with the claw-back provisions is inequity,” he said.
“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.”
He said another problem was the uncertainty of adviser income in circumstances where a claw-back could occur up to three years after payment had been made.
“In our opinion, this is simply unfair,” Trapnell said.
Trapnell likened advisers losing clients to other advisers to politicians losing elections.
“Clients, like voters, can vote with their feet and move on to another adviser for any number of reasons,” he said.
“Under the claw-back provisions, if clients do move on, the original adviser will have to pay back part or all of their past income. We wonder how politicians would respond if they were forced to repay part or all of their parliamentary salary after losing an election.”
Trapnell acknowledged that while claw-backs had the potential to be very unfair, there was currently no real disincentive to re-write business every second year.
“That’s the one criticism that our industry is most vulnerable on. We need to find a way of stopping business being re-written for financial advantage by introducing a disincentive — but a claw-back is only one way of doing that.”
