Churn not advisers' problem, coach says
New Zealand's insurance industry should stop blaming advisers for what might be perfectly natural rates of client attrition, one commentator says.
Friday, November 13th 2015, 10:12AM 
5 Comments
Adviser business coach Tony Vidler said the discussion about replacement and new business needed to move away from advisers "churning" to thinking about how to interpret what was normal in an increasingly consumer-led industry.
He said insurance company data showed a normal client attrition rate of about 5% to 6% of customers every year, at the insurer level.
"Those are customers who simply no longer needed the products or service," he said.
Vidler said a typical adviser who was running an ethical business and working in clients' best interest should then expect to have some clients quit their insurance products.
"If the typical adviser is working with about 400 clients, that means there are about 24 clients who move away each year on average, no matter how good the adviser is," he said.
"Yet we are continually reading that this shift is an adviser-driven problem and that these errant advisers with shifting clients should be run out of town. Isn't it conceivable that perhaps the institutions or product manufacturers themselves also contribute to lost business?"
He said sometimes bad experiences with an insurer might prompt a client to change. On top of that, advisers were required to regularly review clients' situations to ensure they had the best products for their needs.
“The end result is that it is absolutely understandable that any professional adviser can experience a persistency loss of perhaps 14% to 15% in each and every year just because they are doing their work ethically and dealing with human beings whose lives change."
He said: "How much of this business turnover in the industry is really to be laid at the adviser population's feet? More importantly, could it be that 'churn' is not actually an issue at all?"
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Every client, except one, I have had this year that is considered 'lost' premium by the Insurer has been over the age of 55 and reviewing their stage of life. Moving and downsizing homes, reducing debt, embarking in different career directions and plain old retiring.
This hasn't resulted in movement between insurers but either existing cover restructure, trauma instead of IP because of age considerations same insurer, or outright reduction and cancellations due to premium cost and lack of need.
The one, now securely independently wealthy and doesn't need it at age 40, good on them, the plan worked really early in life!
I'm not the only one, advisers closer to retiring than me, will have many in their books where this is happening, and they can't do anything about it. Working for insurers, I've had many conversations with advisers over the years about this very subject, in every case it's affected persistency and the company has been concerned about the lost premium and every adviser has cried foul for being penalised.
I tend agree with them, advisers, so the cover arranged that has been in place for 10-15-20 years has done it's job, hasn't been claimed and is no longer required. The insurer has made substantial profits on these clients, so why are they penalising an adviser when it's done it's job?
We all know it's about premium income and profits, but at the coalface in these situations, it needs some flexibility. Remember the adviser is losing income both servicing and value of the remaining business too, so the pain isn't solely with the insurance company.
My client was already nearing 70. Between him & wife, the medical insurance premium was well over $4k (already increase their excess to $1k to reduce the impact of previous premium increase) and they felt they can no longer afford it after having it for well over 5 years.
Why should that affect my persistency?
Churn is a problem, even if only for the clients 'churned'. By my understanding, churn is moving a client for the advisers benefit only i.e. not acceptable benefit reason to subject the client to the dangers of moving!
There is no effective measure to measure churn, the receiving company has a vested interest in ignoring BRA forms because this is their new revenue and the losing company does not have access to them or the client to generate any effective data.
We've all seen client who have moved companies every two years, on the face of it churn but how do you know it's not just a change of situation? identified non-disclosure, increase or decrease in debt, or job situation or some other quite valid reason that a change may have been instigated.
W K, I like your thinking, probably more 7 years would be reasonable, as most insurers work on a 5 year break even and 7 year profit model. Yes we get pinged for 24 months, but the numbers on the whole are there or there abouts for the insurers with average policy durations at about 7 years.
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And yet, is this measured as churn? If the Business Replacement Form states that the client is changing for superior benefits, to save on premium or their needs have changed, is this counted as churn?
What is the actual definition of 'Churn'and how is it measured?
Any answers out there?