Defining real lapses required to identify real churn
Life/risk companies can only provide lapse rate data when facing the challenge of identifying instances of churn on the part of advisers.
That was the message delivered at a Money Management roundtable involving senior executives from three life/risk companies which specifically discussed the question of churn and the remuneration framework outlined by the Financial Services Council (FSC).
Responding to a question on how big the problem of churn might really be, CommInsure general manager, retail advice, Tim Browne said he believed it was difficult to be specific about the extent of churn.
"What I know is that any insurer knows what their average lapse rate might be, and then any insurer would be able to identify those advisers with a lapse rate higher than the average and beneath the average," he said.
However, Browne said that as far as forming a view about whether those who had a lapse rate higher than the average were doing a better job by their clients - or a worse job - would require an examination of the relevant files.
"So, to my mind, those people within the industry that are best placed to form a view on whether advisers are doing a better job or a worse job are, number one, the licensee; number two, the regulators; number three, the clients themselves and their advisers," he said.
"So, what the insurers are able to offer concrete views on is the actual level of lapses and whether it is higher or lower."
Asteron Life executive general manager, Adviser Distribution, Jordan Hawke agreed with Browne, but said care also needed to be exercised in terms of defining a lapse.
He pointed to the level of debate around lapses, including when a policy expires at age 65, or there is a death claim or a personal or long-term income protection claim.
"The majority of those instances are picked up by the definition of lapse and I think that's the biggest challenge that we have - that an adviser might present with a lapse rate higher than the norm," Hawke said.
He said there needed to be clarity around what represented a true cancellation because of circumstances, and a genuine lapse of policy because it had been moved from one insurer to another.
The full roundtable will be published in Money Management next month.
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