Licensees urged to counter-punch on churn data

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.

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"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.




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why not simply record the actual reason for the replacement by ASKING THE ADVISER !!

Hi Mike - at the micro-level, reasons are crucial but ASIC seems more focussed on whether or not there is a potential issue before asking for explanations incorporating reasons. Another advantage of replacement premium % as a measure is that it may well replace insinuation with insight but to my mind, the main advantage is the process is controlled by distribution.

I have recently assisted a client in making a claim via Terminal Illness benefit on his Life Insurance,which was paid, my understanding is that the Life office involved record this as a Lapse !!

Sorry Col, but don't agree in total. This whole churn argument is a nonsense without proper data. So instead of pussyfooting around, lets get some real data. Ask the adviser the reason for each policy lapse so that we can identify the exact number of churned policies and then perhaps the industry can act on fact instead of the fiction that is going on now. Also, I believe churn would all but disappear if the Adviser had to provide reasons for the policy replacement !! Those guilty of doing it can be weeded out and tossed aside like they deserve and the rest of us can get on doing a job job !!

That's correct Rod. .......and other organisations will consider a lapse as a churn event in trying to achieve their agenda and therein lies the whole problem with the LIF reforms as they stand !!

Hi Mike - No argument from me about what you are saying re perception and reality. On 12 July 2012, in a Money Management article entitled "Life - Risky Business", I believe I suggested similar sentiments. The issue has various facets - the suggestion regarding replacement premium % is seeking to get more robust numbers about quantum which is aligned to premium rather than policy numbers. This is the first step following on from which is the requesting of explanations from those potentially at fault. Happy to chat if you wish to call.

If an adviser is not providing reasons for a policy replacement then that is a major issue. I would have thought that this would have been an automatic requirement which is fully monitored by the licensee. Maybe not according to your comment Mike..? There is already a 4 step process as far as I'm concerned when replacing policies, i.e. recommendation and reasoning from the adviser, approval by the client, monitoring by the licensee at SOA stage, and questions from the new insurer as to why policy is being replaced.
Replacement premium register would alert the licensee to any systemic or reoccurring issues. Warrants further consideration I think.

Robbo, in theory that is how a licensee/dealer group should operate...

In reality, many licensees/dealer groups are seeing their margins getting squeezed so are more concerned about getting money through the door and covering their tracks in the practice's annual compliance review.

Very true Reality. It really does come down to the professionalism of the adviser.

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