Speaking to the parliamentary joint committee on corporations and financial services: life insurance industry in a session held last Friday, a former member of the life insurance industry has called for more scrutiny of dealer groups in regard to misconduct occurring in the sector.
Bill Crawford, who joined the life insurance industry in 1969, has held a number of senior roles for various companies and who has worked for the Commonwealth Bank, discussed the issue of customer churning in the life insurance sector.
“ASIC has indicated to this committee that adviser churn has been identified as a new project and that ASIC seem to be wanting to move to a fee for service model to stop the churn. However, there is another significant party that has had little consideration – and that is the role of the licensee or the dealer group,” Mr Crawford told the committee.
“What is it that the dealer groups are doing? In my time as a dealer manager we did extensive audits on advisers and we actually reported to ASIC about any adverse findings in those audits. I just wonder if this churning is going ahead as it appears to be – why are the dealer groups doing it? They have a responsibility to manage all these situations.”
Mr Crawford said that often “the dealer doesn’t care – the dealer’s revenue is based on revenue earned by advisers”.
There are also questionable tactics occurring in the industry between licensees and product providers in regard to ‘training days’, Mr Crawford said, whereby money exchanges hands between the the life company and the licensee and “low and behold their product is on the product list”.
The committee requested that Mr Crawford submit further evidence to add to discussion on the issue.
It is a pity that this story does not reflect all I said to the PJC. I was also asked to prepare a much briefer SOA not present formal evidence of the new “self space” fee.
While Bill’s testimony may well be an accurate reflection of what happened when he was working in the industry, let’s hope the PJC only relies on evidence of current behaviour. Things have improved dramatically in recent years, particularly since the introduction of FOFA and BID. While the situation may not be perfect yet, it is miles better than the “bad old days” when insurance industry dinosaurs roamed the earth.
Financial planning under FOFA is not only much better than it used to be, it is also a far safer option for consumers than the popular alternatives of real estate agents, junk insurance, and conflicted accountants spruiking negatively geared property and unnecessary SMSFs.
We recently had a client pass away after battling cancer, the claim was paid by the Insurer very quickly and all went smoothly, but I later found out that the Insurer registers the Death claim as a lapse.
I am sick of the “churn” debate. I have been a risk adviser for many years and I have not churned clients.
Very very occasionally I have had to replace a customers insurance due to changing circumstances or excessive premium hikes by one insurer but this is very rare.
Very often I have had to reduce a customers insurance simply due to affordability.
Very often customers have been forced to lapse due to affordability. More recently due to the collective price hikes by all of the insurers by upwards of 30+%
These reductions are all classed by the insurers as lapses and blamed on “churn” when this simply isn’t true.
The biggest and truest churners are actually the direct insurers fronted by the same insurers blaming advisers of churn. They don’t hesitate to sign up a client directly without any adequate checks on the cover they are replacing yet these direct insurers are getting away with what is actually churn.
With respect to Bill, 1969 was a long time ago. He worked for Comminsure 20 years ago and is a “former member of the insurance industry”. quite frankly his views are outdated and irrelevant and I question why he is talking to a parliamentary committee. That being said where there is churn it should be ruled out.
To Phillip A’s point “maybe the insurers should price match”. 100% agree. I had a client recently that I had no choice but to move. Current insurer had repriced their book and the 15 year old policy was far more expensive than there current on sale product. I explained this to the insurer and that my desire was to keep it with them, but no, if you want the new pricing we need to reassess risk and conduct full underwriting. Hence they lost the business.
In a similar vein, I’ve never understood why insurers insist on full underwriting to remove a minor exclusion that has become irrelevant after a couple of symptom free years. If the client is forced to go through full underwriting again, they might as well move to a cheaper comparable policy if one is available – and there often is.
I once set an a round table meeting of 12 or so advisers I was the planner and the others insurance salesman interesting the churning methods they were using in particular to get on as many overseas conferences as possible. On Gold coaster was bragging that he would be on 6 conferences. The state manager who organised the lunch did not bat an eyelid. Common practice !!!!
That is disgusting, hopefully the round table was more than 15 years ago.
How does an adviser prove or give evidence that the “”AFSL is getting kickbacks from Product Manufacturers and then they turn up on the APL.” Hello ASIC we’re trying to help here. The conflicts of interest are at the big end of town and i’m pretty sure those Fat Dealer Group heads, and Fund Managers are not going to say anything that will end the gravy train.
The removal of whole of life is a contributing factor to “churn”. So too is the baby boomers who are price sensitive, but still have the need for insurance. For the insurer “churn” means business that is leaving, new business is business received irrelevant of adviser process. Coles and Woolies price match, perhaps the insurers should do the same?