Licensees should pre-arm themselves for dealing with Australian Securities and Investments Commission on life/risk churn by maintaining a replacement premium register.
Integrity Resolutions principal, Col Fullagar has suggested that keeping of replacement premium registers as a safeguard against suggestions of churn and the absence of any industry-wide agreement around what actually represents a lapse.
Discussing the issue with Money Management, Fullagar said feedback he had been receiving indicated a number of concerns including the lack of transparency and likely consistency about how lapse rates are recorded.
“There is poor correlation between lapse rates and replacement business bearing in mind there is a natural attrition rate of business for sound financial reasons, and there is also a lack of control by licensees over their own destiny in that the life office controls the recording and reporting of lapse rates,” he said.
Fullagar suggests a register may be a way to overcome the issues and, at the same time, enable licensees to counter any accusations of “churn” from the Australian Securities and Investments Commission (ASIC).
He suggested that licensees retain a replacement premium register with details extracted from Statements of Advice (SOAs) resulting in existing business being replaced.
Fullagar said the level of replacement premium when compared to total new business premium would provide a replacement premium percentage — a more accurate means of measuring replacement business without making judgements about its merit or otherwise.
“This measure will alert licensees of potential issues well ahead of ASIC becoming involved,” he said.
“If licensees do that, they will be able to tell ASIC what is really the case,” he said. “They will be taking control of their own destinies.”
Fullagar said that it was clear that there was no real unanimity around what represented a genuine lapse and therefore what represented churn, with the major life offices often using different definitions.
“In those circumstances, licensees have no control over it and have ability to argue that many lapses are not an accurate reflection of churn,” he said.
