Was the life insurance industry ever really guilty of “excessive” churn or was churn a means to a politically-motivated end?
Appropriately defining and quantifying life/risk lapse rates and how they define the extent of churn needs to be settled before the Life Insurance Framework (LIF) can be accepted by all the industry participants.
Life/risk advisers could be forgiven for being confused about what the Australian Securities and Investments Commission (ASIC) really thinks about the level of “churn”, the quality of advice and the manner in which these feed into the LIF.
Why? Because in multiple appearances before Parliamentary Committees senior ASIC offices have made statements which, on the face of it, appear to be contradictory; at one moment suggesting that churn is not as prevalent as first thought while on another occasion suggesting that life/risk advice remains highly problematic.
Media coverage of ASIC’s statements, particularly in Money Management prompted ASIC deputy chair, Peter Kell to use a further statement to a Parliamentary Committee to insist that the regulator was not confused and that there are still serious shortcomings where the provision of life/risk advice is concerned.
In particular, he claimed that while, “of the broad population of advisers with lapse rates that indicated a higher risk of poor advice, we have chosen 10 in the first instance” that “doesn’t mean that there are no problems elsewhere, that every other adviser identified through this exercise is problem-free or that there aren’t ongoing problems”.
In other words, ASIC still believes major issues exist with respect to advice in the life/risk sector but is not yet in a position to quantify those issues.
All of which would seem to justify the calls from the Association of Financial Advisers (AFA) for greater clarity from ASIC, particularly as the industry moves further through the process of implementing the LIF.
The AFA chief executive, Phil Kewin wrote to his organisation’s members outlining his concerns about the seeming contradictions in the ASIC statements and seeking improved data on the issue of the quality of life/risk advice.
Notwithstanding its other objectives, ASIC owes it to Kewin and the broader financial planning industry to provide that improved data together with a viable interpretation of lapse rates and therefore some genuine numbers around the incidence of churn. To do otherwise will be to undermine the legitimacy of the changes being wrought by the LIF.
The most senior executives within ASIC should fully understand the continuing anger amongst life/risk advisers at the processes which gave rise to the LIF and the manner in which recent statements made before the Parliamentary Joint Committee on Corporations and Financial Services have raised more questions than they have actually answered.
The reality is that an appropriate and independent analysis of lapse rates and how that translates to the existence of churn should have been provided to the industry well before the Trowbridge findings gave rise to the LIF and until that issue is settled, grievances will remain.
The AFA is not asking for too much when it asks for proof of purpose in policy change and its request should be granted.
