The lobby group says the examples used to support a churning issue by financial advisers fail to consider all aspects of a situation.
It pointed to a case where a client was considered a victim of churning by his lawyers because an adviser had changed his policy and it resulted in a claim being denied.
However, the LICG said the client had ignored medical advice prior to the change in policy and his adviser would not have been aware of any health issues.
“If the adviser had known of medical issues, they would have deferred changing [the policy] until the medical issue was investigated or kept the original policy,” the LICG said.
“Reforms cannot address client intentional or unintentional non-disclosure. Reforms cannot protect consumers from themselves if they choose to ignore medical recommendations.”
The LICG urged the FSC and consumer groups to look at all issues relating to churn allegations.
“There are no statistics to prove (churn) exists and no definition of churn. The problem for the FSC 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.
“If the FSC and consumer groups were interested in consumer outcomes, they would consider all issues relating to this story, not use it to supposedly prove a false premise.”
I agree on the comment “small minority of advisers who do rewrite their business on a regular basis are well-known – yet no one identifies who they are”.
If this industry is to be viewed as a profession similar to that of the legal, medical and accounting professions, then it should follow the same codes of ethics which sees the bad apples singled out of the industry for good. We don’t need them ruining it for the rest of us.
Added to this argument is the conflicted internal remuneration structures that life insurance companies have where BDM’s and executive managers are paid huge bonuses for their new business inflows.
Every application form I have seen in my time as an adviser asks the simple question “Do you have any existing insurance in place? If so, who is it with and what are the types and levels of cover?” If an underwriter at an insurance company can clearly see ‘a like for like’ replacement that occurred at the 12 month anniversary or near enough to it, for high premiums that are being paid as upfront, it must make commercial sense to simply ask the adviser to justify why the business is being written with them.
This could avoid what I suspect is probably 130%, maybe more, of the first year premium walking out the door as both upfront adviser commission plus huge BDM and Exec-Management bonuses, never to be seen again.
I have also heard it said that apparently there is no legal ground for asking this but I find that incredibly hard to understand and swallow.
Furthermore, I’ve heard some advisers turnover books of clients with hundreds of thousands of dollars and that the very small minority of advisers who do rewrite their business on a regular basis are well-known – yet no one identifies who they are. These reforms will not address these issues – insurance companies could have AND should have stopped this practice years ago. Instead, honest advisers who didn’t abuse Upfront Commission, who needed it to build their business (and no doubt consumers too now) will wear the unfair blame.