Clawback provisions outlined in the Life Insurance Framework announced last week are too tough on advisers, says Synchron Director, Don Trapnell and while they will remove the perception of churn, they are not the only cure.
“We have not seen any significant statistical data that convinces us that a culture of churn exists in the Australian life insurance industry,” Mr Trapnell said. “Our research into the practices of our own advisers further convinced us that no such culture exists.”
Of approximately 600 advisers who have been on Synchron’s books over the years, Mr Trapnell said only two were actively involved in churning. “That is a percentage of 0.33 per cent – that is, one third of one per cent. Of course, we dismissed both of these advisers.”
Mr Trapnell said he is not convinced a culture of churn exists and while introducing disincentives like clawbacks will remove all doubt, it is akin to using a sledgehammer to crack a nut.
“One of the biggest problems with the clawback provisions is inequity – there are times when the adviser has no part in the policy lapsing and yet, under these provisions, it is the adviser who will pay, literally. Another huge problem is the uncertainty of adviser income – a clawback can occur up to three years after payment has been made. In our opinion, this is simply unfair.”
Mr Trapnell likened advisers losing clients to other advisers to politicians losing elections. “Clients, like voters, can vote with their feet and move on to another adviser for any number of reasons,” he said. “Under the clawback provisions, if clients do move on, the original adviser will have to pay back part or all of their past income. We wonder how politicians would respond if they were forced to repay part or all of their parliamentary salary after losing an election.”
However, while Mr Trapnell believes clawbacks have the potential to be very unfair, there is currently no real disincentive to re-write business every second year. “That’s the one criticism that our industry is most vulnerable on. We need to find a way of stopping business being re-written for financial advantage by introducing a disincentive – but a clawback is only one way of doing that.”
The alternative, he said, is to innovate on product shape.
“The problem we have exists because both advisers and insurers are in love with yearly renewable premium rates. On a recent visit to the UK, Synchron independent chair, Michael Harrison and I noticed that most policies there are written on a level premium, set-term basis,” he said.
Mr Trapnell said a level premium, set-term product shape will help address sustainability issues, perceived issues of churn, affordability and remuneration structures.
“We are entering a new world of life insurance and we need to think differently about life insurance products. We believe a new product shape will help ensure advisers are adequately remunerated for their efforts while removing all perceptions of churn once and for all.”
Synchron’s level premium, set-term product shape is currently out for tender with life insurers.
Source: 64 Media
