Policy reviews under the spotlight

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The constant lapsing of insurance policies is an issue that is plaguing the industry, but there is still confusion around where the responsibility falls.

Advisers on social media have called for insurers to do more, with strategy adviser Jamie Forster citing the difficulty to move one client’s policy from their retail super to their SMSF.

“In the future, I will have no choice but to charge for providing this service which ultimately means that, by the time everything is considered, the client's best interest will be served by a recommendation to switch policies,” he said in a LinkedIn discussion.

Meanwhile, another adviser who didn’t want to be named said he was told by the BDM of his product provider to review clients less often, so insurers had a chance to recover losses.

“They explained to me I have been flagged with a high lapse rate, and as a result I could be restricted as to what level of remuneration I can receive from them…”

The adviser reviews clients every year to check their levels are still right, that they understand how much insurance they have, and to ensure the insurance remains affordable to the client. He was told to extend the time before the review.

“[That] is a prime candidate to show how the end client is inadvertently disadvantaged by the FOFA reforms and product providers.  Advice has not become more accessible to clients but less accessible.  I am at a crossroads now as to which clients I choose to target to provide advice to, as I need to ensure I am working in markets that provide me and my business sustainability in providing advice.”

Lapse rates can impact drastically on the insurer’s profits, as they typically spend a lot to put a product on the books.

Jordan Hawke, Asteron Life’s executive general manager for adviser distribution, says that he would be completely comfortable ceasing a relationship with an adviser who had a consistently high lapse rate, or switching to a level or hybrid commission model.

“The reason for that is that in the main, 99% of advisers are acting for their clients benefit and the insurers benefit, and I would hate to see that 1% damage the industry.”

Hawke says that concerned insurers need to be engaged with the advisers and talk to licensees who are responsible for their behaviour in order to determine the reason for the lapse rates. He doesn’t believe that less-frequent client reviews are the answer, but greater communication between all parties.

“You’ve got to have context with all this stuff. You just don’t go around with a machine gun shooting advisers because their lapse rate based on one report looks like it’s out of balance. It’s actually getting the context of understanding what’s occurred. Advisers know their clients.”

BT Financial Group head of Life Insurance Phil Hay also says clients should be reviewed at least annually. He says that one of the key factors in preventing lapses is reaffirming the value of the insurance to clients.

“As things change there’s a myriad of products to suit the clients’ needs…It’s every planner’s duty to make sure they’re looking for the best interest and personal needs of the clients.”

He says that there is also a responsibility on insurers, and that there are three main areas they need to work on:

  1. Education – There needs to be more transparency so clients understand how many claims are paid, what’s paid and all the treatments available at the claims stage.
  2. Simplify – You can innovate but it doesn’t have to be more complex. The simpler the insurance industry can make it, the cheaper and more effective it becomes for the planner and the life company.
  3. Relevancy – Rather than compete with each other, companies need to make sure the product is relevant to the client.

TAL Group CEO and managing director Jim Minto says it would be disappointing to see advisers reviewing clients less frequently, and thinks the whole industry needs to change to suit different consumer needs.

A move to level premiums or flat premiums could be the answer, as TAL direct consumers have already shown preference for these, says Minto. An insurer changing the commission terms of advisers is fairly common, as they attempt to work off a remuneration basis that’s more aligned to both parties. However, he says they could also ask an adviser to stop writing for them, even if the lapses aren’t necessarily their fault.

“When you’re in a situation where you’re all losing, it’s time to change the rules.”

More stories:

Pro-bono work uncovers advice shortfall

Compliance makes adviser life difficult

Advisers can't solve an industry's problem

  • Guy Mankey on 14/08/2013 9:51:42 AM

    Love the idea of level premiums for cover that the client wants to maintain until 65 or 70, but it's difficult when the insurers won't guarantee the rates. The fact is that when a pool is closed to new business and starts to age, the reality is that some insurers will increase the rates against rising claims experience.

  • Craig Yates on 14/08/2013 9:53:15 AM

    There are 2 points that need to made here.

    1.If Jordan Hawke is correct in that 99% of the advisers are acting in their clients and the insurer's best interests, then surely it is up to the insurer's to deal with the 1% of advisers who allegedly are not doing the right thing.
    It cannot be that hard for the insurers to accurately identify advisers who may regularly switch large volumes or all of their risk business every 12 months following a review of their clients needs.The BDM's know,the State Managers should know, the Underwriters will know and the Reinsurers will know, so how difficult could it be.?
    You don't have to re-invent the wheel, to have think tanks, committees etc to solve the problem.The insurers just have to make a call and a business decision about who their target market advisers are and work with them.

    2.Jim Minto mentions that the TAL direct customers are beginning to have a preference for level or flat premium options, but yet only a couple of weeks ago we received documented evidence that the first year lapse rate of the direct life risk business was 40% !
    The inference from Jim seemed to be that the way the direct consumer was electing to pay premiums should possibly be considered for the adviser market as it may be a fix for the lapse problem, when the incredible first year lapse rate figures of 40% for the direct business seems to be a major issue.

    If 1% of advisers are regularly and deliberately switching, churning and lapsing policies, deal with that.
    If the first year lapse rate of the direct business channels is 40%, deal with that.

    Then leave professional, dedicated, trustworthy and ethical advisers to do the work they are meant to do.Support them in their businesses and offer administrative efficiencies and seamless processes so that doing business is cost effective and the vast majority of these so called "issues" will be eliminated.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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