When ‘churn’ turns to lapses and the quality of advice

The Australian Securities and Investments Commission (ASIC) has reinforced the fact that it no longer wants to talk about “churn” and is now more interested in “lapses” and the appropriateness of associated life/risk advice.

The regulator’s attitude was confirmed during its recent appearance before the House of Representatives Corporations and Financial Services Committee where senior ASIC executives, including the deputy chairman, Peter Kell, responded to a question specifically referencing “churn” by choosing to answer in terms of “lapse rates”.

ASIC executive, Louisa Macaulay acknowledged that the regulator was having a look at the life/risk sector ahead of the new legislation being put in place, noting “We understand that a policy can lapse for very many reasons”.

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“From our surveillances that have been conducted over the years, including Report 413, we know that there are, in some parts of the industry, some practices where advice around changes in life insurance policies being given are not in the best interests of the client,” she said. “That's what we're after.”

“So the question is: how do we isolate those instances and address them? Lapsed data is one very preliminary piece of data that we use in relation to that. We have got that data from insurance companies. We take that data and we have a look at it and then we add to it other data we have internally,” Macaulay said.

Asked by Queensland Liberal National Party backbencher, Bert van Mannen whether the lapsed data identified particular advisors who had significantly higher lapse rates, Macaulay said this was the case while Kell said it clearly represented a “flag”

“It's clearly a flag. You need to then go behind that and say, 'Why has this occurred? Is it the case that we've got a whole lot of inappropriate switching going on here, or is there another reason?',” he said.

Kell said it was likely there would be some action resulting from the work being undertaken by ASIC but it was too early to say what that would look like.

However, he reinforced Macaulay’s comments that a lapse of itself was not a breach.

“When you look behind it, it's whether the advice was inappropriate, not in the best interests of the client and whatnot that is the actual issue that we need to confront,” Kell said. 


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Great, so in other words we were wrong on churn so lets just pretend that word dosen't exist anymore, its a horrible word anyway, and its already has its use by date. Now we don't have to give any evidence either to back up the claims that churn was such a issue in the first place, and we have reduced the amount advisers get paid whilst at the same time we have no issue with the insurers bumping up the premiums for existing clients, to be able to reduce premiums for new ones to chase that all important volume ( ie contribute to replacement of policies), back slapping all around!

It is truly horrifying to read this. How did we end up with a regulator so unbelievably disconnected from the industry they regulate? They have finally admitted churn was only an issue for 0.3% of advisers. But now they are suggesting lapse rates are a red flag! How can they be so stupid? A high lapse rate suggests an adviser is actively working hard for their clients best interests. It means they are processing claims, reducing cover as their clients approach retirement/build their wealth and switching clients to cheaper policies when life insurance companies jack up premiums by 20% (which is becoming far too common these days. I wonder if LIF has anything to do with it. Hmm). Apparently advisers are reported to ASIC by life insurance companies if they have more than $200K of annual premiums and more than 10% of policies lapse in a year. So now we have this perverse incentive to stop reviewing clients and acting in their best interests. If you want to reduce the risk of an ASIC investigation and boost your revenue, ignore your clients and sit back on the 20% trail. That seems to be the message from these buffoons in Canberra.

I'm waiting for the first Adviser to be sued for not switching a client into an equivalent, cheaper policy with another insurer....

Using the word "churn" would mean ASIC having to admit two things. That report 413 was a targeted con to get more funding and that the FSC hoodwinked ASIC by only providing lapse data after the LIF was passed and which proved that "churn" was not in fact an industry issue. Both ASIC and the FSC are jointly responsible for corrupt behaviour which will have a terrible effect on customers wanting to get risk advice (or should I say won't be able to afford to now).

Hand on heart, I feel for you risk advisers out there. It's an industry of tightening margins, increased premiums and a generation of "unwell" people are coming through the pipeline, based on an underwriter's viewpoint anyway. I hope you can survive in this new environment, I'd make the insurer and BDM's do 90% of the legwork if I was still advising on it.

Comms are cut and will continue to be cut into 2019. Are premiums going to decrease for the consumer? Or was this just smoke and mirrors for the insurance companies to start making a better margin at the expense of their distributor.

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