The Australian Securities and Investments Commission (ASIC) will spend the next 12 months focusing intensely on the issue of churn, according the senior executive leader of its financial advisers team, Joanna Bird.
Bird, who participated in a panel discussion at the Money Management Risk Issues event yesterday, is responsible for the regulation of the financial advice industry at ASIC.
She said the regulator had seen widespread instances of churn across the financial advice industry and that the problem well and truly existed. Bird added the regulator hoped the industry would self-regulate on this issue.
“We intend to do a project on life insurance churn and it will have three parts,” she said.
“First part will be speaking to insurers and trying to get data on the extent of the problem and how we can work with insurers to try and deal with the problem.
“Another part of the project would be a more traditional approach - reviewing advice given and looking at the policies that were switched.
“We’re also doing work in relation to marketing and promotion of direct insurance.
“This is a complex problem and we’ll try and attack it from all angles,” Bird said.
However, she added the regulator hopes the industry would get back to its efforts to self-regulate.
Commissions related to life insurance were not included in the Future of Financial Advice package on the understanding that the industry would self-regulate, Bird said.
“That’s hopefully just temporarily fallen through, but we believe the industry can deal with it.”
Also participating in the panel discussion, the Association of Financial Advisers (AFA) chief executive officer Brad Fox said the sector cannot regulate itself until life insurers start co-operating.
He said the AFA’s understanding was that some life insurers were more willing than the others to share data on lapse rates.
“The company that actually knows whether the policy is being replaced is the receiver of new business - not the loser; the loser just gets the cancellation,” Fox said.
“That may be why some are not willing to share the data - because they’re the ones benefiting.”
Fox said life insurers would have to collect and report the data on a regular and consistent basis and share it openly.
“Some of it is being replaced because it’s not a good offering; some are being replaced because it’s a very old policy and is surpassed by a lot that’s out there in the market; some of it is being replaced by advisers acting proactively, including acting in the best interest of the clients.”
ASIC Deputy Chairman, Peter Kell, told the AFA Conference in October last year that the regulator regarded churn as an issue, later hinting at potential regulation.
The controversial churn policy put forward by the Financial Services Council was abandoned in Feburary this year due to lack of support, with chief John Brogden urging the industry to heed ASIC’s warning.