Churn debate: Underinsurance the issue, not commissions
Kepa group chief executive Jeff Page says the Financial Markets Authority should step in and set some rules around churn.
Thursday, June 25th 2015, 2:40PM 
1 Comment
Page says the life insurance industry should sort the problem out itself but it has shown that it hasn’t been able to do so.
He says the life companies can’t agree on things and there is little prospect that the dealer groups could sit down together and come up with a proposal.
“The industry in this country has been unable to sort this out,” he said.
“If the industry is smart it will sort it out,” he says. But “I’m fearful that won’t happen.”
Page says there is little doubt churn takes place in New Zealand. Indeed Kepa has exited three advisers from its group over the past 18-months as they were churning business.
“We don’t want to have our brand associated with those advisers churning business,” he says.
Page says the Financial Markets Authority should work with the insurance companies and adviser groups to develop a “common set of rules.”
Some of the problems are defining what is churn and what is genuine replacement business. This is made more difficult as insurance companies regularly engage in one-upmanship and tweak and enhance their policies to out-do each other.
As for the vexed question around whether consumers have suffered because of churn, Page says yes and no.
There may be cases were policyholders have been denied claims for reasons such as non-disclosure or pre-existing conditions, however he doesn’t think its an “endemic” problem.
“There’s not a queue of people saying they are disaffected.”
He doubts premiums would come down if the level of churn was reduced. On this outlook there would be little benefit to customers if changes were made.
When it comes to conflicts, Page is clear it’s an issue.
“Most independent advisers are conflicted everyday of their lives when recommending product,” he says.
The conflict comes in many forms including earning points for overseas trips, getting share allocations and getting contributions to superannuation schemes.
Page says the big issue really is the under-insurance problem.
He says if commission levels fall then many good advisers will leave the industry. This, he says, won’t help New Zealanders get good, independent life insurance advice.
Other CHURN DEBATE ARTICLES
John Body, OnePath Don't make it a war on commissions
Milton Jennings, Fidelity Life Don't follow Australia
Therese Singleton, AMP, AMP surprised
FMA starts major investigation into churn (includes comments from Partners Life managing director Naomi Ballantyne and AIA's Wayne Besant).
| « Churn debate: Sovereign has nothing to add | Why Dealer Group QFEs isn't a far-fetched idea » |
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From my perspective across 20 years, being a client, then working for an insurer and now as an adviser I've not seen any substantial shift in underinsurance based on commissions.
To the effect increasing and higher commissions increased reasons to churn rather than addressing any underinsurance. If anything higher commissions and higher movement have probably contributed to higher premiums and thus less insurance not more.
I don't have access to the hard numbers but the anecdotal correlation suggests, in the time we have had increasing commissions we have increasing under insurance.
Addressing the balance and focus back on the client, increasing servicing income will naturally reduce upfront commissions, less pressure on upfronts and more on servicing will result in policies remaining in place longer. As an industry not paying multiple times to acquire a policy will have a positive premium effect eventually.
Though policies remaining in place longer will likely result in more claims which for clients is a great thing, for the insurer it may apply pressure where the the above statement provided premium relief.
I doubt it, otherwise commission discounts and resulting premium discounts wouldn't be sustainable either.
While no-one likes to give away money, reduction in upfront commissions, increased servicing income will have some premium relief for clients. This will also support the genuine adviser who is looking after and servicing their clients, by ensuring healthy and financially sustainable practices. For the big boys, it's a case of getting the model right and not losing sight of the client in the $$ earned as often happens now.
There is a stat kicked around, average trauma claim age 48 average cancellation age 47, is this due to the industry behaviour causing unaffordable premiums or a fact of life at age 47 premiums are getting too expensive?