The churn chimera and real politik
Amid all the angst and politicking around the implementation of Life Insurance Framework (LIF) there remains a key area of unfinished business — a clear definition of ‘churn' and definitive data to underpin that clear definition.
While Money Management has taken the view that implementation of the LIF has become a fait accompli for life/risk advisers, it agrees with concerns that the key reason cited for the Trowbridge Review and the consequent formulation of the LIF is ‘churn" and that no one has appropriately defined the scale of the problem.
Also of concern is that so-called "churners" have always been readily identifiable by the major insurers paying their commissions yet, publicly at least, names have not been named and churners have not therefore been shamed.
But, of course, the problem was always defining what was "churn" from other factors such
The degree to which the Government has relied upon the existence of "churn" as a reason for encouraging the Trowbridge and LIF processes was last week exemplified by the Minister for Revenue and Financial Services, Kelly O'Dwyer when she said three separate reviews had identified "churn" as a problem.
Discussing the Government's legislative program around financial planning, the minister said: "We have got legislation now prepared that will be brought into Parliament this year to actually raise the standards for financial advisers, raise their training, ethical and professional standards that will mean they are held to a much, much higher standard. It will make it much more difficult for somebody to go to a dodgy financial adviser and get bad financial advice," she said.
"We're bringing in legislation next week for life insurers to make sure that the current conflict that exists right now, where life insurers can have 120 per cent of a premium in an upfront commission, can no longer continue because they are churning through clients according to three separate reviews."
The minister is right that three separate reviews have raised "churn" as an issue, two of which were undertaken by the Australian Securities and Investments Commission (ASIC). However none of those review processes produced specific data on the defining the scale of the churn problem.
What is certain, however, is that if churn has actually existed as the major problem portrayed by ASIC, then the LIF will put an end to it. There can be no doubting that the commission structures and processes which have been agreed by the parties have removed the incentive for advisers to "churn" clients into new policies so that they can re-access high upfront commissions.
Addressing the Association of Financial Advisers annual conference in Canberra, last week, O'Dwyer left delegates in little doubt that the Government was not for turning on the LIF legislation, albeit that she has already delivered a number of minor concessions around timing and implementation.
Her address to the AFA conference was more than token in circumstances where that organisation's handling of the Trowbridge processes and the development of the LIF has created a deep schism among some sectors of its membership.
Politics is game of pragmatism based on numbers. Sentiment rarely plays a role. In the aftermath of the AFA's extraordinary general meeting prompted by its handling of Trowbridge and LIF some members may feel motivated to part company with the organisation. That will be both unfortunate and a denial of the underlying political arithmetic.
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