A life insurance adviser has called for more accurate data on churning before any legislation is enforced.

Pathway Wealth Solutions Principal Greg Newton says in a submission to the Parliamentary Joint Committee on Corporations and Financial Services’ life insurance inquiry that insurers do not differentiate between a policy that is cancelled and one that is replaced through a different insurer.

He says reasons for policy cancellation can include premiums becoming unaffordable, clients moving to new jobs or group life schemes, and payment of claims.

“Before both sides of Parliament change the operating landscape so dramatically, wouldn’t [it] be wise to quantify how much ‘churn’ there actually is in the industry?” he says.

“In many cases the reporting systems used by insurers simply don’t differentiate between a policy that is ‘cancelled’ versus a policy that is replaced by a new policy written with a different insurer.

“Unfortunately, it is these flawed statistics that are being used as a catalyst for this legislation.”

He says rather than enacting the proposed legislation, with its emphasis on advisers repaying commissions if a policy is replaced, the Government should devise regulations aimed at genuine “churners”?

To replace the clawback proposal in the legislation, Mr Newton says the start date of the existing policy should be included with the new application for cover.

If there is no proof of the existing policy’s commencement date, it should automatically be assumed to be within the past 12 or 24 months and subject to a reduction in the level of commission.

“This way the adviser doing the replacement policy is the one penalised because they only receive a reduced amount of revenue or potentially no revenue at all.

“The other adviser who wrote the business in good faith and who wasn’t party to the churn isn’t the one who gets penalised.”

Mr Newton says the effects of recent legislation, such as the best-interests duty, are still flowing though and will stop most instances of churning.

But if someone intends to do the wrong thing, “no amount of legislation and red tape that impacts on the law-abiding section of the community will do anything to change that”.

“If the existing legislation needs to be changed, let’s do it in a way that actually targets the churners, not the innocent advisers.”