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Churn report should include banks: Insurers

[UPDATED] Insurers have welcomed the Financial Markets Authority turning its attention to replacement business – but say it is incorrect that banks cannot churn customers.

Wednesday, June 29th 2016, 12:53PM

by Susan Edmunds

The FMA has released its report into replacement business, which identified a small number of advisers who were writing potentially concerning amounts of replacement business.

It focused only on RFAs and AFAs. The FMA said while banks could mis-sell insurance products, they could not “churn” because they only had one set of products to sell.

Naomi Ballantyne, of Partners Life, said the report was welcome. “I’ve been pushing the FMA to do research into replacement business.”

She said the report gave the FMA a target that it could now focus its efforts on.

But she said it would have been better to include banks in its research. She said it was incorrect to claim they could not churn because, with only one provider's products available to them, bank advisers were incentivised to replace the policies of every customer they dealt with.

“The focus on the RFA/AFA community is incorrect.”

She said anyone who was rewarded for a sale could potentially churn policies.

The insurance industry needed to realise its customers were more exposed to the dangers of churn than other sectors, where customers might also move provider, such as fire and general insurance or KiwiSaver, she said.

“We only get one bite at the pie in terms of assessing clients’ health and we can never change what we provide to them. That is what they stand to lose when business is replaced. I don’t think consumers have any idea they had that protection or the risk of losing it."

She has previously called for more rules around replacement business processes for advisers.

Ed Eadie, of Fidelity Life, also welcomed the debate and an open discussion of churn. “But we need to emphasise there are no specific instances of harm identified.”

He said Fidelity would work with the FMA as it progressed its investigations in the areas of concern it had noted.

But he said there was a risk that financial advice and the work of advisers could be damaged in the eyes of the public by such reports. “I would like to see a more balanced report across all aspects of distribution.”

Sovereign chief executive Nick Stanhope said quality advice was important. "Part of this is clear disclosure. Advice needs to be simple and affordable for consumers, and advisers need to be fairly remunerated for their services. At the same time, New Zealanders need to know what they are paying for to receive this advice," he said.

"Sovereign believes replacement business can be healthy when it leads to better outcomes for the customer; it also encourages innovation and competition. However, more accountability around moving customers between companies to earn additional commission is an effective way to address concerns around churn. Sovereign will continue to work with the FMA and the wider industry to ensure the customers best interests are at the forefront of everything we do.”

Tags: Fidelity Life FMA Naomi Ballantyne

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Westpac 4.59 3.09 3.29 3.39
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