An open letter to ASIC and the FSC

This admission came about due to the insurance company members of the FSC providing ASIC with full market lapse data. A very different situation to the review of a mere 202 files from “a targeted surveillance of advisers who give personal advice” (ASIC’s own words in report 413). Unfortunately, for many of us engaged in risk advice this admission came about after the LIF was passed.

For most of us engaged in risk advice, we didn’t churn clients because we had no need to unless there were very exceptional circumstances.

We had no need to churn clients for two reasons:

1. Moving a client from one company to another with the ramifications of re-underwriting is very rarely a good idea for the customer and, if we have done a good job in the first place, rarely necessary; and

2. Before the LIF was passed, premium rates remained very consistent with the insurance companies.

However, since the LIF was passed we find ourselves in an impossible situation and we need help, guidance and some answers.

Since 2017 and after LIF was passed, the same FSC member insurance companies have all been increasing premiums at unprecedented levels for existing customers.

As much as a 15 per cent per premium increase and in some cases as many as three or four separate increases since 2017. I have some clients who have seen their premiums increase by as much as 50 per cent over the space of two years.

This, as we have been informed by the insurance companies, is because of “high claims experience”.

However, the same companies have all been reducing premiums for new customers by as much as 25 per cent for the same products.

I now find myself in a very different situation to the one I was in before the LIF was passed.

Nearly every annual review I do I find that premium rates (new business premium rates) with other companies can be as much as 25 per cent cheaper for my customers. Worse, if I were to “churn” these customers to the very same insurance companies they are already with, the premium rates could also be as much as 25 per cent cheaper (same customers, same occupations, same products).

My questions to FSC CEO Sally Loane:

1. If your member insurance companies have to increase premiums for existing customers due to “high claims experience”, how are they able to reduce premiums for new business for the very same products?
2. By reducing premiums for new business, that your members are increasing premiums on for existing customers for the same products, do you believe that your members are now actively encouraging a churn issue that was not there in the first place? This being in direct contradiction to what the LIF was supposed to be stopping.
3. Why, during the consultation period, did your members not release the market lapse data to ASIC which showed that churn was in fact only reflective to a small number of advisers? Why did you wait until after the LIF was passed?

My questions to ASIC chair James Shipton:

1. As stated above, the insurance companies are able to significantly reduce premiums for new business for the very same products they are increasing premiums on for existing customers, citing “poor claims experience”. How is this possible? And why is this not being investigated?
2. If I am able to re-write (aka churn) a customer back to the very same company they are with or another company and save them 25 per cent for the same cover, then should I? You have offered no guidance on what is acceptable but I have a “best interests duty” to my customer.
3. If I should not “churn” the customer, should I reduce the cover when they simply can’t afford the excessive premium increases? Both options will be classed as a lapse (cover reductions are classed as lapses) and reported. How do I avoid being doomed if I do and doomed if I don’t?
4. In 2021 you will review life insurance advice and lapses again. Lapses are not reducing and in fact I believe they will have increased significantly because customers simply cannot afford 25 per cent plus premium increases. Will you be taking this into account in 2021? Will you be looking beyond 202 targeted files? 

This is very wrong. I believe the insurance companies are effectively robbing existing customers to pay for their new business targets and encouraging churn with this practice.

Anonymous Adviser, on behalf of all risk advisers and risk customers