The Minister for Financial Services, Bill Shorten in consultation with the Australian Securities and Investments Commission (ASIC) has declared the Financial Services Council (FSC) will resume its efforts to implement an anti-churn framework for the sector.
Shorten has stated in a letter to the Financial Services Council (FSC) that “while he recognised the difficulties associated with achieving a consensus, he remains firmly of the view that achieving a satisfactory outcome in this area is critical to enhancing advice to consumers in relation to insurance products, particularly in the context of life insurance.”
Joanna Bird Senior Executive Leader of ASIC’s financial adviser team has said that over the next 12 months ASIC will be focussing intensely on the issue and that, “the regulator had seen widespread instances of churn across the financial advice industry and that the problem well and truly existed. She also added that, “it was extremely difficult to gauge the extent of the problem due to lack of hard data from life insurance companies.”
It seems a fair degree of customer confusion exists in the area of what is churning and what is not. Customers need to have a thorough or educated understanding or what is churning and unlawful and what is simply a change in policy. Bird has said that, “the problem is that switching life insurance policies is not necessarily churn. There may well be very good reasons why an adviser would change a client’s life insurance policy. We see churning as cancelling existing policies and applying for new policies to maximise the adviser’s revenue, without delivering any real benefit to the client. She added that it, “it causes real harm to clients, to consumers, and in those circumstances we want to take action against it.”