Churn debate: AMP surprised
AMP was "suprised, but pleasantly surprised" that the FMA has launched its investigation into churn.
Tuesday, June 2nd 2015, 9:42PM 
12 Comments
AMP general manager Investments and Insurance, Therese Singleton, says there is no reliable industry data on what is happening and this enquiry may help However she reiterates the view that a quantatitive analysis of data may not provide clear answers to the question of whether there is churn as it doesn't address why each policyholder made the descision to switch.
"I don't know how big the problem is," she says.
One thing which may come out of the investigation is that the FMA may identify some advisers who have shifted books of business. Whether the FMA is able to investigate this further is unknown.
Singleton says "most advisers are sick and tired of being tarred with the churn label" and sorting out the issue is a good idea.
She says AMP advisers all sit within a QFE structure and have to give full advice to clients and they don't churn business. However half of the life insurance the company writes comes from other RFAs, most of whom were formerly associated with AXA.
"We don't have visibility of the advice these guys give to customers."
While AMP says its QFE advisers don't churn business, and it is unclear if there is an industry problem, Singleton says there are clear indicators other firms are winning business from AMP and there are "higher customer loss rates than before."
She didn't specifiy how much bigger these loss rates were.
However, it is unclear if policyholders were being disadvantaged by any churn or replacement business. On face value there doesn't appear to be a customer problem. She says there are no stories appearing of "customers being victims of churn."
That doesn't mean to say the FMA shouldn't look at the issue. There is a perception of conflicts of interest because upfront commission levels are so high, and higher than most countries around the wor;d.
More importantly the industry doesn't want to find a problem in 20 years time when policyholders come to make a claim and are denied.
She says there is no way to know what would happen to premiums if the level of churn was reduced. Premium setting is a complex process with many variables, including commission.
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Comments from our readers
On 4 June 2015 at 10:15 am Longinthetooth said:
Maybe in today's new legislative world churn could be a good thing, with the way we now are required to present , maybe the clients would be better covered, better informed, maybe?? On 4 June 2015 at 10:31 am LPL said:
If the FMA really wants to see churn what they need to do is extend their search back 10 years and do a data match on names and DOB across companies. On 4 June 2015 at 11:40 am Southern Man said:
A very interesting subject that will continue to be discussed long after we are gone, I guess. Churning happens, there are no doubts about that. It would only need to be a few advisers that could cause the issues for us all, chasing the up front dollar. But some insurers also have to answer to the FMA regarding the churning question. Sovereign's BDMs past and present have apporached our buisness to try to transfer books across. Other advisers have tried to transfer books to the likes of Partners or AIA in a wholesale, all or nothing, and try to cut a deal. But as mentioned above, some insureres have been, even recently promoting transfer terms, and targeting individuals to move their book of clients that are no more than 5 years old, and in good health. Interesting to read the previuos article when Mr Besant, from AIA made a comment, that it is his companies sales force that has been doing the transfer terms promotions, and surprisingly has opened up its cheque book and paying top dollar for the business. I think that they are the only company with transfer application forms, encouraging the churn? On 5 June 2015 at 9:20 am Dirty Harry said:
AMP's QFE advisers don't churn. Of course not. But they are reviewing their clients, and finding that the AMP policies are lower quality than other carriers, and more expensive.
So they are conducting replacement business to the client's benefit. They happen to get a commission, but AMP also clip that ticket with their CSU system.
However in the majority of cases the client is at the centre of the deal, in fact some will be saying they want to change - if you, Mr AMP adviser can't/won't do it, I will deal Mr Other Adviser who will.
On 5 June 2015 at 9:30 am RiskAdviser said:
This is an interesting discussion. With Goldstar's comments and information you could argue that AMP is churning business, as the clients are getting inferior products and potentially lesser products than they already have. The only ones winning is AMP and the adviser from that perspective.
There is a fine line between churn and good advice, when there is a change of provider and even change of product. You could also argue that movement to a lesser policy with terms is churn, without understanding that better disclosure is the reason for the terms and the reason for moving was the original cover was non-disclosed and the cover offered was the only available option. This isn't always well documented unless someone goes through a client's file in quite some detail.
The whole subject of churn is quite emotive. 'I don't do it so it must be all of you' sort of mentality seems to exist. There's the argument about beneficial rearrangement and all manner of other phrases that cover the subject. As Milton said in another article it's appears generally the few that are causing the problem, but we don't have any real data to base it on. Let's focus on the data first, then we know what we're really dealing with?
Movement of business and policies is the natural effect of a person's lifetime. single, married, house, kids, new house, new country, kids leave home, promotions, divorce, remarried, more kids, retire. All of these things change a person's risk and their attitudes to risk change too. Is it churn or just good advice? Most would say advice as there's a change in the client's risk.
With the option for advisers (and I'm using this very loosely here) not to do existing policy comparisons, this increases the client's risk. How many of AMP's advisers have really done a policy comparison when they have moved business to AMP?
This FMA endorsed aspect of replacement business needs to be removed. Yes it's a pain to go digging, but if we are truly putting ourselves out there as advisers we need to do the whole job and not abdicate out of the one bit that can have the most profound impact on a client, cover they had that they now don't. That's just asking for a complaint!
On 5 June 2015 at 11:43 am Goldstar said:
That is an interesting thought RiskAdviser!
AMP's own website recommends using an AMP adviser because they "...can recommend the best insurance options for you. There is no obligation, but with specialised advice you can relax knowing the things important to you are protected."
I wonder if AMP is requiring their advisers to put a business case to them for why they have recommended the AMP product over the other vastly superior and cheaper products in the marketplace?
Perhaps AMP is confident that clients will cherish the company's long history and financial strength as their Adviser tells them the claim is declined because their policy doesn't cover the particular circumstance?
While AMP is pleasantly surprised at the FMA's investigation into churn, their Advisers may not be so pleased. Any income protection policy they've placed with AMP in the last 5 years that is a replacement of another providers product could hardly be anything other than churn.
On 5 June 2015 at 3:59 pm RiskAdviser said:
Goldstar, I like your thinking, reading a few other comments you have made on the subject in other posts. Nice work.
Back on AMP and not to just pick on them, but the other providers in a similar situation, like MAS, Cigna, niche providers and most of the banks.
Where their product quality vs existing policies is questionable with replacements.
The current crappy justified defence is; 'I explained the risk and advised the cover I had available. Not being familiar with the particular policy the client had, I didn't do a policy comparison, I advised the client of this and they still decided to take the policy I was offering'.
But the client did get a claim paid and they could have on the policy you replaced?
Sorry 'Your Honour' I didn't know they were going to lose benefits, I did my bit and they made their own decision.
And this is the FMA's published stance on this, it's justifiable and defensible and needs to be changed.
My question, is this the expected behaviour of an adviser or a sales person?
It's a bit like being pregnant, you are or you are not, there is no in between. With Advice it should be the same.
Advising on new cover without understanding the old cover is sales not advice. Advice is based on a completely informed decision. Any advice lacking information is just sales and put clients and advisers at risk. This is where the focus should be.
Churn I expect will be hard to prove as digging you will always find a reason for the cover movement, in almost all cases the policy holders will be underinsured in some way.
Funny thing is if you can afford all of the insurance you probably don't need it. If you can't then you'll only take some of it, because that's all you can afford. And every client will make different decisions based on how the adviser presents the risk.
On 5 June 2015 at 5:35 pm John Wood said:
I am saddened to see this article by Therese Singleton being used as an excuse to attack AMP. Sure, the way the article has been written perhaps may lead to some wrong interpretations but let’s just focus on the issue raised by Therese, churning. Presently the FMA is investigating the amount of replacement business (churn if you must) that is actually happening. There is plenty of speculation about the size, degree of churn and who is doing it but little or no data to actually back it up. Once the size of the problem has been actually calculated by the FMA investigation, the next and most important issue is going to be opening up client files where replacement has occurred and accurately assessing if the client has been disadvantaged or not. Whether within the AMP QFE or outside in the IFA space where I sit, only then will we have accurate data on the degree of churning and whether it is a serious problem or not in this country. Hopefully following the FMA investigation here, the results will be different to the two recent Australian Life Insurance Reviews (ASIC Report 413 2014 and the Trowbridge Report 2015) which showed how bad churning was over there and the apparent reasons, high upfront commissions and misaligned incentives. Spending more time, energy and effort into providing constructive feedback to the MBIE and their consultative paper on the review of the FFA presently on the table will have far better outcomes for us all than personal agendas. On 8 June 2015 at 10:13 am Goldstar said:
John Wood, as an AMP QAN adviser you can certainly bring another perspective in here.
There is a distinct difference between replacement business and churn. One is advantageous for the client and one is not.
The point I am making is that AMP is very unlikely to be losing a lot of business to churn because there aren't many products in the marketplace that are inferior to the current AMP offering. If Therese chooses to imply that churn is why AMP's share of the insurance market has declined so drastically she must expect to be challenged.
On 8 June 2015 at 12:15 pm dcwhyte said:
Good to see some healthy debate emerging. But I remain mystified as to the blind acceptance of the reports from Australia. Trowbridge made his recommendations based on ASIC"s review of 70 client files - from a total population of 18,000 advisers, with 150 clients each (?) That's 2,700,000 client files; 70 = 0.003%. This is statistically insignificant evidence and it is not safe to conclude that the reports are "showing how bad churning was over there" (has it stopped now?). There is also no evidence to conclude that high upfront commissions or 'misaligned incentives' (whatever they are) have led to inappropriate behaviour in Australia.
Don't get me wrong - I'm not stating that they do or that they don't - or that 'churning' doesn't exist as an issue. I'm stating that there is no empirical evidence upon which to make such statements.
Do the research properly and reach informed conclusions, rather than indulging in emotive rhetoric driven by unsubstantiated opinion.
On 8 June 2015 at 5:22 pm RiskAdviser said:
Thanks David, while Trowbridge raises some points of discussion, using it to set regulation would sound fraught.
John, not attack AMP, but raise the point that the insurance companies generally have blinders on when it comes to this subject. What is good advice is another's perception of churn. There are significant differences in products and product quality available.
Yes based on how a risk is presented you could offer every provider in the market to a client. The question is; does it realistically fit the client or the limited product set available to the adviser?
Keeping in mind the adviser concerned still has to make targets and feed his/her family. In these situations the client's true need for another provider's product gets lost in the debate.
There are a number of issues and agendas at work, and as we have seen in the past, those with the biggest cheque book tend to drown out the smaller operators.
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I just did a quick sample of AMP’s main product lines in QuoteMonster.
$300,000 life cover on a non-smoking male aged 38
(Most expensive of the non-banks and lowest quality score)
$300,000 life & trauma on a non-smoking male aged 38
(Most expensive of the non-banks and lowest quality score – 14% more expensive than the best product in the market)
$50,000 income cover (4 week wait, to 65, indemnity) on a 38 year old self employed skilled blue collar worker.
(Most expensive of the non-banks and the lowest quality score – 27% more expensive than the best product in the market and a ‘remarkable’ 2½ stars for quality)
Therese Singleton alludes to the "higher customer loss rates than before" and that other firms are winning business from AMP. I suppose, by this article, she would have us believe that this is, in part, because of churn?
The definition of ‘churn’ is moving cover to another provider for little or no benefit for anyone other than the adviser.
Therese is right. AMP advisers don’t usually churn their clients. I would assume they are doing the job they are legislatively bound to do – review their clients regularly and meet their needs with the best solutions available.
It will be interesting to see if the FMA concludes that churn is the cause of AMP’s problems?