FMA focus on churn no surprise
Advisers shouldn’t be surprised that the FMA is turning its attention to the question of whether insurance business is being “churned”, commentators say.
Friday, February 20th 2015, 6:00AM 
4 Comments
by Susan Edmunds
In its Strategic Risk Outlook for 2015, the FMA says it wants to address the misselling of financial products, including KiwiSaver and insurance products.
“Misselling of insurance products, including selling products that do not meet the customer’s needs, or churning of customers is an area of concern. We have received an increasing number of complaints regarding insurance sales and will undertake work to more accurately size the problem. Insurance misselling will be included as a key monitoring theme for our team.”
It said it would prioritise reports of RFA misconduct, particularly in relation to insurance misselling.
David Whyte, of DCW Management, said that seemed to imply that the FMA was going to decide what constituted good practice. “Is it in the interests of the client or otherwise? They will use their monitoring resources to get close to that issue.”
For advisers who were looking after their clients well, it would not be a problem, he said. But there would be some who might be concerned.
The issue of churn had become high-profile recently, he said, as ASIC in Australia highlighted poor insurance advice practice there. “Their commission rates are 110% to 120%. Nothing like the levels in New Zealand. One wonders what ASIC would think of the market here,” Whyte said.
Russell Hutchinson, of Chatswood Consulting, said it was important that the FMA not prejudge that replacement business was necessarily bad for consumers.
He said the challenge for the FMA would be who it pursued.
Going after an individual adviser for churning business could have less impact than cracking down on an organisation such as a bank, direct-to-consumer operation or other group.
Depending on the point of view of the person at the helm of the monitoring, the action had the potential to become very commission-focused, he said. “But the FMA doesn’t get to control commissions, that would require legislative change, which is hard to do.”
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Comments from our readers
On the contrary, it is way more often a positive move, improving benefits and/or reducing cost.
The worrisome issues around it are to do with non-disclosure and an Adviser MUST be absolutely diligent in making clients aware of the risks as well as the benefits of changing.
I would trust the FMA will focus on PROCESS rather than often-subjective individual advice & recommendations.
If the written Statement of Advice summaries accurately the client's position, identifies the issues with the current plans, compares the old with the new, and points out the risks around changing & non-disclosure, then replacing a policy should not be an issue for the FMA.
If I come across one of your clients, for example, and it's been 10 years since they'd had you darken their door and I find that they have a crappy old second-tier trauma policy for an amount that is not sufficient to their needs and with definitions that are a decade out of date, and the new policy I recommend costs LESS the one being replaced, you're saying I shouldn't get paid. Ha!
By the way - fiduciary duty says that you work for the party who pays you - make a note
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The way to ensure "client best interest" is for companies to only pay for any new business component. All churned premium is zero commission. Then you will really see the level of "client best interest" rather than the lip service given to it now