Churn lacks evidence, definition
The arguments for churn as an issue in the life insurance industry lacks evidence, statistics and a solid definition, a risk adviser group has argued.
The Life Insurance Consumer Group (LICG) has issued a statement arguing that reforms would fail to tackle intentional or unintentional non-disclosure by clients on changes in health conditions. Reforms would also fail to protect consumers who ignore medical recommendations.
The group also said replacing policies might be in the best interests of the clients as it might result in premium savings, improved benefits and updated definitions.
"Advisers are damned if they do, damned if they don't," the group said.
The comments came in response to media coverage of a 40-year-old Sydney IT consultant, who it said was a victim of churning in 2011. The insurer denied the claim because of non-fraudulent, non-disclosure within the first three years but the claim would have been paid if the client had remained in the previous policy.
However, the LICG argued that the claimant had ignored medical advice to have a fatty tissue deposit on his neck checked by a medical professional.
It also argued that if the adviser had been aware of the medical issue, they would have kept the original policy or postponed the change until the medical issue was resolved.
"If this adviser was only acting in self-interest then they deserve to be punished and banned from the industry. No evidence exists to blame all advisers based on this isolated example of consumer detriment."
"The problem for the FSC (Financial Services Council) is that statistics might prove there is no problem of ‘churn' which would spoil the story and prevent the FSC members' self-serving ‘fixing' of adviser remuneration and clawback provisions," the group said.
It said that if the FSC and consumer groups were concerned about consumer outcomes, they would have considered all angles of this story, instead of using it to "supposedly prove a false premise".
AUTHOR
Malavika Santhebennur
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