Some segments of the industry say the Financial Services Council’s (FSC) stance to proactively reduce the practice of insurance policy churning by advisers will not have the desired effect, while others say it is unnecessary — although it has also generated some support.
FSC chief executive John Brogden last week proposed a ban on takeover terms, and a two year responsibility period on policies with commission clawback if policies were cancelled in that period.
Director of risk focused licensee Synchron, Don Trapnell, said the two year responsibility period puts onerous pressure on the income generating capacity of the adviser, and has the potential to penalise advisers who aren’t doing the wrong thing.
“It’s not necessarily a matter of rewriting business that causes a case to lapse; everybody presupposes that advisers are out there churning over business on a regular basis,” he said.
But market conditions and market pressures should be able to regulate the industry, he said. The ultimate beneficiaries of the terms suggested by the FSC will be the life companies, he added.
Speaking from a personal point of view, Col Fullagar from RI Advice said that a two year responsibility period is probably not the answer.
“The answer, in part, lies with life offices giving greater credence to remuneration systems that reward the right activities,” he said.
You can’t blame advisers for receiving an advantage from facilities put in place by life offices, he said.
The life offices currently have systems in place that allow them to identify which advisers are abusing the current system, and Fullagar asked why the life offices don’t look to speak to those advisers and put corrections in place.
This could include only making available level commissions if lapse rates exceed a certain level, paying a higher rate of remuneration to advisers doing the right thing with the increase being funded by those who are not.
“If the current system was properly addressed, the need for Government pressure to move risk insurance to fees may not be as necessary. This would then enable advisers and their clients to make a choice as to what is better – fees or a commission structure that rewards sustainable activities,” Fullagar said.
An Asteron survey on the topic sent to around 5,000 advisers quickly generated over 300 responses, with more than half stating that removing takeover terms would not reduce churn. However, two thirds of advisers believed the two year responsibility period would reduce churn.
Asteron executive manager, national sales, Mark Vilo, said there was a perception that advisers are being penalised due to the churners but that the issues weren’t necessarily being resolved.
Advisers in the survey suggested reducing up-front commissions or looking at different responsibility periods for different types of commissions. For example, up-front commissions could incur a two year responsibility period, but on a hybrid commission it could be less, and less again for those on level commissions.
Asteron executive general manager Jordan Hawke supported the ban on takeover terms and described the move as a “great first step.”
