Examination of churn will lead to commission debate
The upcoming report on risk insurance churn to be released by the Australian Securities and Investments Commission (ASIC) is likely to lead to further debate on removing commissions but would not examine the total cost of advice related to risk insurance according to Synchron director Don Trapnell.
He said ASIC is taking a balanced view of churn and is seeking data on those most involved with the practice, which was to be expected of the regulator, but was concerned that any debate on commissions would not recognise how risk advice was remunerated.
"Advice can be provided on insurance but if it is not purchased the adviser is not paid. Risk advisers receive payment by results and most of the work is in the first year where there is the most cost to deliver the advice which is why there is an upfront commission," Trapnell said.
"Renewal commissions come into focus at the time of claim when the adviser acts to have the claim paid and all that work is paid upfront via commissions."
Trapnell said underwriters within insurers should also be working to prevent churn by examining policies and ensuring they are not been rolled from one insurer to another in rapid succession.
"If an existing policy is in force the insurers will know it has to be cancelled. However if it was churned over to them it can be churned away from them and underwriters can protect the insurer's book of business by checking whether this is the case," Trapnell said.
"Insurers have asked me how an underwriter can see and understand the Statement of Advice (SOA) that goes with the insurance but our clients understand them. If the SOA has a best interests duty and safe harbour provisions included an underwriter should be able to see and understand that."
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