Churn terminology needs to change
Using words like ‘churn' polarises opinion and gets in the way of the industry being able to focus on the real underlying issue, which is product design, according to head of retail advice at CommInsure, Tim Browne.
Browne told the delegates of the Association of Financial Advisers (AFA) national conference on the Gold Coast yesterday that the company had stopped using the churn terminology because it did not accurately represent the issue at hand.
"We as an industry know that the vast majority of advisers do the right thing by their client each and every time," he said.
The underlying issue, according to Browne, is the duration of policies.
"The insurance industry today is building policies on the assumption that they will remain in force for seven years," Brown said.
"If they do [remain in force for seven years], the economics of insurance will work so that 50 cents of every dollar goes to the client as a claim; about 25 cents goes to upfront establishment costs including commissions: about 15 cents goes to policy maintenance, and you have 10c as profit."
If the policy doesn't remain in force for the whole seven years and gets cancelled after three years, for example, the economics don't work, Browne said.
"Those are my thoughts on where we should be thinking through these issues and I don't think it's had enough publicity thus far."
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