The numeric focus inherent in the churn debate ignores the wider systemic and cultural shifts surrounding life insurance, while a return to responsibility provisions would reduce the issue among financial advisers, according to long-standing industry participants.
TAL group chief executive Jim Minto said consumerism was at the heart of the discussion around lapse and churn rates, as consumers were beginning to factor in the price of life insurance at the time of its annual renewal.
Minto said consumers have had low interest in life insurance, which was not seen as price sensitive and was mainly sold with advice and considered "a necessary evil".
"There has been a clear move to better awareness on insurance and its pricing, especially among Generation X and Y who are happy to compare advice and product and shop it around," Minto said.
Recent years of tighter economic conditions have also conditioned people to be less committed to their insurance, with Minto stating that the flight to thrift has put more pressure on advisers and insurers to retain clients.
"We need to see that consumerism and product shifting will be the new normal as people make their own decisions around life insurance, and that the churn debate has revealed the change to the structure of insurance that many assumed would continue."
DEXX&R managing director Mark Kachor confirmed that his group had found that discontinuance and attrition rates had moved to the upper end of their range in the past three years. This shift had lead to concerns of greater churn taking place among financial planners.
However, Kachor said the financial services industry has always had anecdotal evidence that some planners and their clients were changing policies because of changed circumstances or outright churning.
"We also know that when the economy falls, discontinuance rates climb because life insurance is one of the first things to go – because the perceived need wanes unless they have ongoing advice around the insurance," Kachor said.
Kachor said the current model was conducive both to the ability to churn and to disguising the fact – but mechanisms existed to change the incentives for these practices.
"There are legitimate reasons to change policies, but recycling a book of business is still possible and profitable under the current remuneration model.
"It can be easily prevented by extending the responsibility periods and claw-back periods and cutting back take-over terms, which creates a financial incentive alongside the required ethical imperatives. This is the simplest solution and has worked effectively across the industry in the past," Kachor said.
Association of Financial Advisers chief executive Brad Fox said recent discussions with heads of insurers had found that instances of churn were low, but concerns remained about those advisers who were systemic in their use of the practice.
Fox also stated that much of the noise around churn failed to identify replacement policies being taken out for clients, and had yet to factor in shifts from policies given with advice to those purchased from insurers via direct channels.
