ClearView Wealth managing director Simon Swanson tackled the issue at length in his company’s annual report, released yesterday.
Life insurers have seen income protection and lump sum claims increase, and lapse rates have also headed upwards, said Mr Swanson.
In recent years, life insurers’ lump sum business and term life books have subsidised income protection portfolios, he said.
But as mortality has improved, income protection claims have materially deteriorated, said Mr Swanson.
The increase in income protection claims is a combination of increased mental illness claims, falling insured incomes and “difficulties in people returning for work because, for many, their job no longer exists”, he said.
The industry has responded by investing in better claims management techniques, said Mr Swanson – but that is unlikely to be enough.
Insurers have also started to increase income protection premiums for their ‘old’ portfolios, but that has created a price differential with new business premiums, which can be significantly cheaper, he said.
“The problem with this is that the customer is worse off with the increase and can be upgraded by their adviser to a new policy (with potentially better features) on lower premiums,” said Mr Swanson.
“Advisers taking such action with their clients are putting the customer first and acting in their best interests – others in the industry want to call it ‘churn’,” he added.
Furthermore, some “ill-informed” members of the life insurance industry (along with some external commentators) have started an “emotional attack on commissions that are paid to financial advisers for life insurance, especially upfront structured commissions”, said Mr Swanson.
The attacks stem from pricing differences rather than the “rational” commission structures themselves (whether they are upfront or level), he said.
“An adviser doing the right thing by their client has an obligation, morally and now at law (that is, best interests under FOFA), to provide their clients with a better alternative – that is to potentially move from outdated, expensive and/or poor terms policies to a better outcome – irrespective of commission structures or the remuneration of the financial adviser,” said Mr Swanson.
It is perhaps revealing that insurers care about churn AWAY from their products but not churn TO their products…. just sayin’
I see no problem with an adviser upgrading a client to a product which is superior, fairly priced and meets better the client’s needs. Churning cannot apply to this example.
Of course there are some (very few) who may churn but eventually the industry will expose them (at least I hope so).
We all have the same issue, if a current provider won,t “””upgrade””” an existing policy and the client needs increased cover without issues, call it what you want – I call it meeting client needs and BEST interest. Any other issues that arise. Stiff s!!!. The reality is that the providers – in such instances- are not meeting the market and client needs, the ones that miss out cry churn, we call it acting responsibly. If the resulting income is a problem– dial it down- at the end of the day, the outcome is basically a commercial reality.
Insurance companies put in place the pricing and incentive to “churn”. they have the power to remove commissions if they want. Don’t blame this issue on advisers. Without them under insurance would be a bigger issue. it’s up to insurance companies to get their pricing right, not advisers.
The industry cant have it both ways.
If Saving clients money for the same thing elsewhere is churning then Churn baby Churn!
Follow the rules people, live by the sword die by the sword.
Points finger at FPA and laughs at their two faced, spineless, self interested yes men organisation.
Just waiting for the clowns at FPA or Kaplan to bring out an anti churn course at $900 a pop to be compulsory.
i find this whole churn debate a farse,
are we meant as advisers to look after clients or be loyal to the insurance company. Any adviser doing the wrong thing their compliance department should be picking them up.
It’s a bit rich coming from Clearview who came into the market with an aggressive pricing offering that only encourages churning as the average consumer looks for any opportunity to save a few dollars in this economic environment.
Their product offering can be best described as opaque & given they’ve made it public knowledge the objective of the business is to build it up quickly for potential PE sale. So this strategy of ‘buying business’ through aggressive pricing has clearly come back to bite them & I would suggest they consider their actions on the marketplace rather than pointing the finger at adviser commissions so readily in an attempt to further consolidate the industry into 1 big institution at the ultimate long term detriment to the Australian public
The reality is that in times of financial crisis there is always an increase in claims for a myriad of reasons but predominately to do with financial stress. As we come into the global recovery, insurance companies will see a reduction in claims and their profits will increase and their life actuaries take these anomalies into account when pricing their products or at least the competent ones do!
Sustainability is the issue not churn, and new entrants can use the opportunity of a clean book to grab market share while their competitors are funding claims.
That is simply competition and I agree with Simon, that is good for the client, just not the life companies shareholders.. hence the noise from the FSC.
I experienced just such a case recently, tried to increase an IP benefit for a client, and the new benefit is cheaper under the new policy than the lower benefit on the old policy – same insurer. He is still healthy, and now better off rolling his cover to the new product. I don’t get paid full comms (same insurer, 4 year old policy) but I have satisfied best interests and kept the client happy.
Probably of no coincidence that the anti churn attack seems to coincide with insurers facing increased claims and pumping up their premiums.