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New anti-churning rules introduced

A set of new rules to stop advisers "churning" life insurance policies changes come into effect on Thursday, but are already creating concerns.

Tuesday, June 29th 2010, 5:57PM 18 Comments

by Jenha White

The Investment Savings and Insurance Association (ISI) chief executive Vance Arkinstall says sadly there are cases where existing policies have been replaced and several years down the track when a claim arises it is found that the new policy doesn't provide the cover expected.

He says the new Business Replacement Rules and Reinstatement guidelines aim to provide increased transparency and disclosure so that life insurance policy owners who are considering replacing an existing policy with a new policy make an informed decision for the right reasons.

However, Hudford Parker Financial Services manager Giles Thorman has a few concerns about the new guidelines including the form pointing out that whomever is selling the new policy is likely to be paid for it.

"I am sorry, but since when have I been a registered charity, who expects me to work for nothing?"

He says the new changes imply that the broker is not really acting in the clients best interests.

However, Arkinstall says the change is relevant under the new financial advisers regime with a move to total transparency and disclosure.

He says it is not a requirement to tell the client of remuneration but the point is there so the client knows the adviser gets paid, giving them the opportunity to ask further questions.

Thorman is also concerned about point six which states: "I/We acknowledge that a copy of the completed form will be given to both the old and new insurer".

He believes that if the client signs it, they are effectively waiving their rights to privacy.

"My suggestion to everyone in the industry is to put a line through this clause and have the clients initial it which will mean a copy of the Replacement Business Advice cannot be sent to the old insurer as to do so would be an infringement of the clients privacy."

Arkinstall says the ISI believes there is merit in the old insurer getting to see the form so they have the opportunity to change any incorrect information that has found its way to the client.

He says if a client didn't want the old insurer seeing the form they could crossit out or refuse to answer that point.

Thorman says there are also other areas that need to be signed off by the client, namely that they have received a copy of a brochure that explains their old policy may be better than the new policy and that advises the client that the old insurer may well contact them just to check up and make sure that the broker has not "ripped them off". 

"I shall be very interested to hear from the insurance companies some of whom state categorically that the broker owns the client base and the relationship is primarily with the broker.

"Here we have the possibility of someone sitting in the head office of an insurer with limited sales experience, likely very limited knowledge of other policies available in the marketplace and almost certainly infinitely less knowledge of the marketplace as a whole, contacting the client and calling in to question the recommendations of their broker."

Arkinstall says it is an opportunity for the old insurer to correct misunderstandings, not to limit the activities of advisers. He says it is to ensure the consumers decision is based on full and appropriate information.

"The new guidelines have been developed with the input of ISI members who are supportive of the changes," he says.

"We are operating in a  new world and confidence and trust is important - this is a step to help build that."

 

 

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

« Tower wins right to insure ANZ wealth division customersISI says it will now consult on its new anti-churning policy »

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Comments from our readers

On 30 June 2010 at 9:18 am Majella said:
I've long argued with companies that the ARB is a joke. When I've had business taken from me, I've often found that the advice provided was, in my view, inadequate, and successfully conserved the business. The ARBs provided to those clients were pathetic examples of replacement for commission only. Bah! I agree that the compnay from whom business is being moved should have the right to ask the Adviser to provide a copy of the statement of advice. When, occasionally, I have moved business - my own and anyone else's, I have provided a copy of the advice with the ARB to the new issuer. I'm happy to do the same for the old insurer.
On 30 June 2010 at 12:30 pm Gerard said:
Majella, in my experiance very few insurance adviser actually provide a statement of advice. Get them all to do this and we are all starting to look like professionals. If you can clearly show why a client will be better off from moving them (by the letter of advice) then OK. If you can't then you will probably just look to be a registered adviser under the new rules and carry on as normal.
On 30 June 2010 at 1:36 pm Majella said:
Gerard - you're so right: many STILL do not provide any advice in writing...often the only thing the client gets is an illustration. It's so unprofessional. It SHOULD be illegal, though I believe the new AFA requirements do include that a Statement of Advice be supplied.
I've been doing it since I started in 1992: it just seems LOGICAL and shows respect for the client's intelligence.
On 30 June 2010 at 2:54 pm Regan said:
Hmmm. The only Banks that are listed as members of the ISI are BNZ and KiwiBank. Walk into any branch today and see if you can't find an insurance brochure, or price chart on display. So we will still have the issue of bankers (with a capital W??) trying it on with our clients, usually on price alone, replacing comprehensive trauma with essential, for example - and no ARB, let alone written statement of advice etc. It has happened to me more than once. In each case the client had never heard of and could not produce an ARB and the business was conserved, but only after detailed comparisons.

In other words, this doesn't really address the problem, because the offenders will keep on offending. There may be some extra reproach, but that's ambulance at the bottom isn't it?
On 30 June 2010 at 3:04 pm Lisa - Insurance Adviser said:
Finally something's being done about the advisers that churn their client book to get another full commission (and other benefits) for the same business. I recently came across someone who had been churned 3 times by the same adviser!

I have no fear of complying with the new rules as I don't churn my own clients.
When taking business off another adviser I already fully explain everything with the client – now it just has to be done in a different way.

However I do think the RPA should also have whether or not it is the same adviser recommending a new provider and why, because then the old and new provider should know what the adviser is doing. When it is the same adviser then the client should also know that he/she is being fully paid for their business again.

I know some providers give advisers the option to discount premiums if they take a lower commission; perhaps this would be an option with all providers for the rare same advisers that are changing provider for the client's best interest, not theirs.
On 30 June 2010 at 4:18 pm Peter said:
I see, so it's o/k to churn as long as it is from a fellow adviser!!
How about sending a copy of the form to the existing adviser as well, this way all parties will know who's doing what!!!
Personally, I have had enough of holier than thou "advisers" doing business under the clock of darkness......
On 30 June 2010 at 4:27 pm Bazza said:
When is churn twisting and when is churn doing the right thing by the client? How can any person in an insurance company make that judgement without knowing the client, their situation, and the other companies products? If we are to put the client first surely everytime a company launches a new whizzy product or the same product that is cheaper' we must do what is in their best interests, not what is best for the profitablity of the ISI members. Thats what the new code says anyway... Giles I agree a cumbersome tool that will only add cost to the new business process which the consumer will end up paying for.
On 30 June 2010 at 4:38 pm Johnny Adviser said:
With 60% of the population uninsured, I'm constantly aghast at the number of those in the 40% who're being churned. Don't be so lazy! Get out and write some new business on people who have nothing and leave alone those who've already insured themselves.
On 2 July 2010 at 9:05 am Andrew said:
The best way to sort out the churning issue is for the insurance companies to only pay commission on new cover. So if you "churn" a client with $200,000 Life with Tower to $250,000 with Fidelity for example you only get paid commission on the differnece in cover ie $50,000. Obvioulsy there would still be issues with renewal but I suspect the high upfront commissions are also to blame. If all companies move to a more renewal based payment structure Clients would stop finding themselves being changed to a "better" policy every two years by their own broker.
On 2 July 2010 at 11:58 am Kevin said:
What gives the old insurer the right to contact my client and ask them if they are sure they want their existing policy replaced? They are not qualified in giving advice and have never met the client. Should we send them a copy of our advice reports? This is a joke but no real surprise...
On 2 July 2010 at 5:57 pm Geoff said:
A different Perspective.

In the insurance & mortgage/investment industry the term 'Churn' is used when an existing product is replaced by a new one.

The Electricity, telephone, motor vehicle industries etc, pick up new clients everyday, who leave their previous supplier for a new one.

We accept this as normal, but not for financial services?

Surely people change for a reason, & this is their choice.
Sometimes they may do so for the wrong reason, however as a consumer we can all choose the wrong provider, supplier at some time in our life.

What is interesting is the insurers don't complain when obtaining a client from a competitor, only when they are losing some?

Sour grapes maybe?

The real issue I see here is when a client claims, & misses out due to poor advice given or taken by themselves, over what was in place prior.

Can we prevent this?

Maybe, but there are so many contributing factors, we can not wrap the public in a safety blanket.

On 2 July 2010 at 6:13 pm wobbly bob said:
If the ISI is so worried about replacing policies and states "then several years down the track a claim is disallowed", why doesn't it come up with some statistics.....probably because it doesn't have any. This is just a band aid fix to a wider problem and needs a total review with all companies coming on board.

Having said that I have no problem with moving clients from company to company, as long as they are getting a better deal who gives a figs ass what the ISI or the insurance companies think, they are my clients and I will look after them to the best of my ability and using all the tools available at the time.

And if the threat off a phone call worries some of you, well ha de ha ha - insurance companies write to clients when they miss a premium or to tell them their premiums are going up, as if anything they say will alter anything discussed between the advisor and the client.

I have already drafted a letter to send out to all my clients that includes the ISI brochure, telling them that more than likely they will be filling one out in the future if the circumstances warrant it and they end up better off.

I have no loyalty to anyone but my clients, unfortunately some advisors don't have or can't have this trait.
On 2 July 2010 at 8:56 pm wobbly bob said:
If the ISI is so worried about replacing policies and states "then several years down the track a claim is disallowed", why doesn't it come up with some statistics.....probably because it doesn't have any. This is just a band aid fix to a wider problem and needs a total review with all companies coming on board.

Having said that I have no problem with moving clients from company to company, as long as they are getting a better deal who gives a figs ass what the ISI or the insurance companies think, they are my clients and I will look after them to the best of my ability and using all the tools available at the time.

And if the threat off a phone call worries some of you, well ha de ha ha - insurance companies write to clients when they miss a premium or to tell them their premiums are going up, as if anything they say will alter anything discussed between the advisor and the client.

I have already drafted a letter to send out to all my clients that includes the ISI brochure, telling them that more than likely they will be filling one out in the future if the circumstances warrant it and they end up better off.

I have no loyalty to anyone but my clients, unfortunately some advisors don't have or can't have this trait.
On 6 July 2010 at 9:46 am Peter said:
Giles Thorman completely misses the point. Noone expects him to work for nothing, but the changes should hopefully ensure that rip-off merchants do not keep screwing clients time and again for generally a poorer form of protection when they are older and may have issues which were covered under earlier plans.
Low lifes like these have been the scourge of this industry for years and are the ones who have meant that these changes are needed.
Unfortunately this will all cost money and the poor sucker who has to pay for adviser dishonesty and all the new regulation is the client.
On 6 July 2010 at 10:07 am ant said:
I have had many claims for upgrades I have made to a clients portfolio that they otherwise would not have been able to claim had I not moved them. Where is there a mention of this in there statement? We work for the client not the insurance company, if there are benefits that are available in a new product it is our responsibility to make the client aware is it not.
On 6 July 2010 at 11:59 am Noel said:
For those adviser that have been in the industry for a number of years will all have seen.
1) ISI members promoting the churning of business. Having BDMs calling on adviser suggesting and giving out the tools like one page health statements to make it easy to churn business.

2) How often do we see ISI members bring out new products. Then within a couple of years withdraw them because they don't cut the mustard. Then advisers asked to go back and replace those policies.
I think some of the ISI members talk with forked tongues. Say one thing at the ISI meetings anther when they are back in the office, where the pressure is on them to earn more profit for the shareholders.
I don't think a good Adviser has anything to worry about.
We all know that administrators don't make good sales people.
On 7 July 2010 at 11:25 am billy the broker said:
Some interesting comments to ponder.As always there are some comments from the perfect insurance agent who holds themselves above the rest of us, like Lisa!Who only moves business when it is not her client, how quaint. Thats ok to do but it is taboo if she does it to her client base. And what horror, she came across a client who had been churned 3 times!!Burn the broker at the stake I hear poor Lisa say. No doubt after lisas expertise this client was yet churned a 4th time, so she could get it in her base.I only hope she gave the client maximum discount, I think not! The poor thing in this industry is that there are to many egos floating around, which can be easily seen by the above comments.Who like to make a point that they perform the perfect sale etc etc.What a crock! Churn is good, in cases where it benefits the client, it keeps companies competitive , it also sorts out those old brokers who are sitting on massive client bases and do not service them. No matter what paperwork there will be, churn will always be here.Like it or not. Message here, always service that base.Because if you don't you will get churned on!
On 7 July 2010 at 5:54 pm billy the broker said:
Great comments from wobbly bob.
Commenting is closed

 

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