Churn debate: Don't make it a war on commissions
ANZ Wealth managing director John Body says the FMA's investigation into churn is an opportunity to build a more sustainable industry and shouldn't be a war on commissions.
Friday, June 12th 2015, 2:19PM 
4 Comments
Body says the enquiry was not unexpected as the FMA had made noises that it wanted to learn more about the insurance industry.
He says ANZ-owned life company OnePath is happy to take part. “We have seen reasonable activity in our book, so we have got pretty good information.”
Body says it is important that the enquiry isn’t turned into a war on commissions. Rather he sees it as an opportunity to build a platform the next level of sustainably in the industry.
“I sense it is a combination of increased transparency to the customer and a commission structure that balances the initial work up front with the on-going requirement of the servicing of customer.”
“We don’t want this debate to be about commissions. We know there are a whole bunch of really skilled professionals out there who need to get paid for what they do.
“The debate has to be about the long-term industry structure sustainability and how we build the reputation of the industry.”
The majority of the industry performs an exception job at getting New Zealanders insured, Body says. However, there is a very small minority of advisers who are moving business for the wrong reasons.
They “are spoiling the industry for vast amount of professional people in it,” he says.
“The industry itself needs to decide if it wants to deal with people who are doing that.”
He says the most rationale approach and the approach OnePath is taking is to stop dealing with the advisers who churn business.
“We will support the part of industry doing a great job.”
Body says there needs to be a degree of self-regulation, and he thinks that is starting to happen.
“All successful industries self regulate,” he says.
Any change though has to be carefully.
“We have to be careful to recognise that there is a bunch of great people in the industry doing a great things for New Zealanders,” he says. “We can’t afford to let this be a big industry problem.”
Body says the spotlight is now on this part of the industry and it is going to intensify the debate about what’s the kind of conduct of the industry and the long-term sustainable structure.
“It’s got us all thinking about change,” he says. “It’s not a debate of manufacturers against advisers it’s a debate about building a strong sustainable industry.”
Body says he supports Trowbridge’s view on conflicted remuneration and transparency to the consumer, but not his views on remuneration levels.
“I don’t necessary think the structure in terms of commission works for New Zealand. There are alternative solutions which probably work better for everyone.”
Body says OnePath have been thinking about this and doing some work on what commission structures may look like in the future.
He says one of the key issues is working out what a sustainable remuneration structure is for the industry in the future.
OnePath is doing some work on this, he says. The total remuneration to advisers probably won’t change much, but there maybe changes in the timing of payments to advisers.
“I kinda think the total rem package looks OK (at the moment),” he says. However it’s “probably a little bit too biases towards upfront.”
The future model “has to be sustainable from the industy’s point of view but critically from the adviser point of view as they are trying to run businesses .“
“We’re thinking about it but we are not about to jump on the lower upfront, higher renewals anytime soon.”
When it comes to the question of whether policyholders who have been churned have been disadvantaged he says it’s hard to know, but it doesn't look like a significant issue.
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Comments from our readers
A change in the asset commissions to servicing commissions following the servicing adviser would mute some of this effect, as would lowering, but not removing new business commissions. (Lose them we lose lose a lot of good advisers)
It would also mean advisers have a better reason to service their clients, as currently a change of relationship without policy cancellation improves the advisers workload without creating any financial impact on the losing adviser.
My two pence on the article, if providers actually policed the replacement business forms for the business coming their way the churn debate would disappear overnight, but then that goes against the principal of the insurer to maximise profits for the shareholders.
Ahh but in OnePath's case, they no longer require a business replacement form, so they now collect less data than before and really have no idea about what reasons they are getting the business, but will whine when they lose it!
No insurer can police policy replacement and neither should they be expected to. For one, unless the adviser is their employee, they simply do not have the client information to make any sort of judgement on whether replacement is in the client's best interests or not. This is the domain of the adviser.
I for one would find it wholly inappropriate for an insurance company employee (who would this be, must they start hiring advisers now to review applications?)to attempt to second guess my advice (and frustrate the client's instructions).
The replacement business form is meaningless and achieves nothing. What the client needs is a proper comparison of benefits gained and lost by replacing their cover, so that any decision is properly informed.
However underwriters should have a complete view of the client and from my experience tend to be less commercially focused than the sales manager or BDM, even under pressure. As to understanding the situation, surely this is why we complete a 30+page application and need to justify cover. The advice for cover should never be in question, the implementation is more the issue. The harm to the client is what the FMA is looking at, mitigating this should be the responsibility of the insurer and their agent, you the adviser, in every case. As an adviser the insurer is also responsible for your advice, they already have a vested interest in you getting it right under your agency agreement.
As an adviser, advice and BRA's should contain a better reason than cheaper or better cover or I just like this adviser better. It needs to be substantiated. If we don't lift our game in this regard, and I've seen thousands of BRA forms completed by advisers, we're not going to improve perceptions of our industry or stave off significant regulator intervention.
Just today a case was brought to my attention where a client had been advised to take Mortgage Protection with two different companies. First off a claim is a certain level of fraud as they have double insured for the same risk. Probably on the basis the advisers poor understanding of no offsets on both policies, missed the bit about no offsets unless for the same mortgage and the same disability. And no this wasn't a transfer where the old cover wasn't cancelled because it got forgotten about...
Another one not so long ago, client had just turned 40 and was 7 months pregnant her adviser sold her a Sovereign trauma with children's and maternity to access the maternity complications. The pregnancy was disclosed but the cover issued didn't have the expected exclusion for this pregnancy, why? because the policy only covers pregnancy complications from age 16 to <40. The adviser sold off the brochure and hadn't read the policy wordings. Fortunately there were no issues with the birth, but if there had been the adviser was in the firing line based on reasons the client requested the cover, which were well documented.
Complex issues, yes I agree, I don't expect the insurance company to pick them up, the majority of issues that cause client harm are like these, quite simple and usually the basics advisers should be getting right but often don't.
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I think any "churn problem" is not caused significantly by advisers regularly moving their own book around. A much bigger problem is advisers who stumble on a client of another adviser and who then churn to another company because that is the only way they can get a commission out of their efforts (this is also where a client is more likely to be disadvantaged by a move).