APRA buys into lapse/churn debate
The Australian Prudential Regulation Authority (APRA) has brought into the churn debate, but pointed to the fact that lapse rates are actually higher with respect to products which are directly sold to consumers.
Further, the prudential regulator has said it will be closely monitoring this situation.
APRA member Ian Laughlin used an address to an insurance industry forum to comment on the discussion around lapse experience among the major insurers and the factors which were influencing the situation.
"No doubt there are various forces at work here, including product competition, the economy and activities of advisers," he said. "The question is whether this experience is a short-term blip or a more fundamental change."
Laughlin said APRA was urging all companies to monitor the position closely and to "seek to understand the reasons for their experience, and from this form a robust view on likely long-term experience".
Commenting on lapse rates on "directly marketed business", Laughlin noted the high lapse rate of such policies in the early years of their existence.
"….Such business has high lapse rates in the early policy years, and we have expressed concerns about the reputational implications of this," he said.
"In the normal course of events, these high lapse rates are allowed for in pricing," Laughlin said.
"The risk is that actual experience is worse than anticipated and profit is depressed. We have seen some evidence that this is occurring, so we will monitor this experience closely."
Laughlin's comments come at the same time as the Financial Services Council, under pressure from both the Government and the Australian Securities and Investments Commission, has reopened discussion around developing self-regulation around life/risk churn.
Recommended for you
The Federal Court has dismissed a conflicted remuneration case brought by ASIC against the director of life insurance distributor Freedom Group, where Bali holidays and Vespa purchases were among sales incentives.
Policy and advocacy specialist Benjamin Marshan has left the Council of Australian Life Insurers after less than a year, having joined in March from the Financial Planning Association of Australia.
The declining volume of risk advisers meant KPMG has found a rising lapse rate for insurance policies arranged by independent financial advisers, particularly in the TPD and death cover space.
The Life Insurance Code of Practice has transferred from the Financial Services Council to the Council of Australian Life Insurers.
