Not all churn is bad, admits ASIC

The Australian Securities and Investments Commission (ASIC) has admitted that "churn" is not a breach of the law and may well be in the client's best interests.

Asking a question on notice from a Parliamentary Committee, ASIC revealed that it was receiving data from life insurance companies about churn by financial advisers that would enable it to monitor overall levels of churn in the life insurance advice industry.

However the regulator cautioned that "churn is not in itself a breach of the law because it may well be in the client's best interests to change life insurance policies".

ASIC said that, "therefore, data on churn is not a direct indicator of the level of compliance in the life insurance advice industry'.

It said that, at this point, ASIC was primarily using the data to identify advisers who might be providing non-compliant advice and should be subject to surveillance.

"Finally, we note as part of the Government's reforms to the remuneration arrangements in the life insurance advice industry, we will be conducting a review on the success of the reforms in 2021," ASIC said.

"In order to inform the review, we will collect data from life insurers periodically over the next few years. We have worked with APRA and industry to ensure we collect good quality, consistent, and useful data."

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Is it time to clearly define the difference between lapse and churn? I can help start: a churn is illegal and not in the clients best interest. A lapse is something that will occur to 100% of insurance policies.

As an industry we can't manage something we don't measure, or measure with a degree of accuracy. It comes back to correctly defining a problem being the first step to any solution.

If we have a data burden, may I suggest that this is imposed on the insurers themselves?

The fact that ASIC is using the word Churn to describe compliant advice that is in the client's best interest is the real concern. We have legislation being introduced apparently remove churn but it's never been defined and because it's never been defined there are no statistics to show at what level it's occurring. Ridiculous situation.

"churn is not in itself a breach of the law because it may well be in the client's best interests to change life insurance policies". Who would have thought? I look forward to some guidelines to deal with this latest revelation.

No shiz, Sherlock! Only took you 3+years to figure that gem out? Clearly staffed by Einsteins... Now if only this came into the discussion sooner, so that both camps of inept pollies had time to read and then digest that fact

ASIC, you are a disgrace !
You made "churning" the catalyst for FOFA with detrimental consequences to both the consumer and the majority of good advisers.
If there was non -compliance by a small segment of the industry, you should not have punished everyone in the industry for the sins of a few.
As you can see the scale of "churning" was of such a small number that not one Life company was willing to be the first to reduce commissions, increase "clawbacks" without the aid of an ignorant Federal government fueled by misinformation from the members of the FSC. Even worse for consumers, most of those FSC members opportunistically increased their premiums across the Board up to 20.0%.
One even took their "best of breed" income protection policy off the market and introduced an inferior one by comparison.

Shame on you ASIC and worst still you showed the lack of morality now on display by many Life companies.

Surely, an informal definition of "churn" is to replace an insurance policy with no benefit and possible detriment to a client in order to receive an upfront commission payment from the new policy for the benefit of the adviser.
Therefore if the replacement of an insurance policy is for the client's benefit, it is not churn, and ASIC shouldn't be calling it that. It is advice, and it is replacement of a product. It is not churn.

The FSC drove this agenda with only one objective - to have commissions reduced to improve the profits of insurers. ASIC may be slowly waking up, but all too late.

Is a penalty designed to stop churn now illegal. If ASIC accept that churning is sometimes/often acting in the best interest of the client AND If the AFSL MUST act in the client's best interest then can the Insurance company (ie AFSL) put in place a policy to discourage people from acting in the client's best interest????

If it's in the clients best interest, it's not churn, has ASIC completely lost the plot?

Gee Whizz!!! ASIC might also one day realise that hybrid commissions actually pay the adviser more money over time than upfronts. What will they do then? Force legislation & every adviser to move to an upfront commission model?

Anyone feel stitched up?

Just remember ASIC is like the US Attorney General. Disagree with the Political Master and you get sacked..... You have to stick to the agreed political story, just never admit this is influencing you.

Does anyone else feel so enraged at ASIC/Politican/FSC incompetence & mutilation of our industry, that you would dearly love to scream in their faces exactly what you think of them? Between Labor ISA and ASIC, we have been persecuted since the GFC - time for us to say enough!

Is it all in a name...?

The word churning should cease being used for changing insurance (except in a circumstance where it does not meet the clients best interest duty) as it was for investments many years ago. When an adviser recommends that their client switches some managed funds or shares today to meet the best interest duty in trying to place them in a better financial position it is commonly known as switching or transferring. You don't hear or read about switching or transferring being negative or a bad things.

So if changing insurers meets the best interest duty then perhaps ASIC could refer to that as "switching" or "transferring" in the future just to avoid confusion.

Just a thought...

If risk products are replaceable products like most other products then product pricing needs to reflect that. Everything from regulation to manufacturing to risk technology development suggests they have become a replaceable product even tho many parts of the risk value chain are still based on the assumption risk products are not a replaceable product.

The cost of the product including how the sales channel gets paid needs to reflect that. Change will only continue

ASIC is a disgrace. I agree with all of these sentiments in that it has been a stitch up and have known this for over 2 years! I am just as disgusted in the AFA for their stance or lack of back bone shown. Do you all realize that the AFA received a huge influx of new members when the banks decided to pay for the memberships of all the salaried advisers? At the time just over 2 years ago we were all given the choice of which association we wanted to join by just ticking a box. I choose AFA as I thought their roots went back along way in a proud history of sticking up for advisers.... sadley I was wrong.

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