Life insurers are to blame for churning because they put pressure on advisers to recommend new products to clients, an adviser group says.

The claim comes in an Association of Independently Owned Financial Professionals (AIOFP) submission to a Parliamentary Joint Committee on Corporations and Financial Services industry inquiry.

“The Life Insurance Framework campaign has been orchestrated by a small number of powerful company executives who have… failed with their own product pricing strategy over many years and now choose to blame the advisers for their predicament,” it says.

“All the real data shows 90% of switching is caused by [life insurance] companies increasing premiums in the second and third year of policy duration after competing in the first year based on price to get market share.”

The AIOFP says advisers and consumers want to reduce premiums, so look to switch.

“The adviser’s role is to select a product that suits their client’s circumstances and then commence the underwriting process to guarantee cover.

“This best-interests obligation is an ongoing commitment to the client’s circumstances, not just a first-year decision.”

The AIOFP says life insurers now prefer to sell direct, rather than rely on the adviser distribution model. It claims direct products and those offered through group life are inferior.

“Advisers are a threat to this strategy because they demand the client gets a guarantee of cover up front and acts as their ongoing advocate to protect their position, particularly in times of claim.

“As all the recent poor publicity displays, the insurers take advantage of families in their hour of need by making underwriting decisions that are in their best interests, not the consumer’s.”

The AIOFP says insurers intimidate policyholders and do not want advisers involved.

“Allowing insurers to sell flawed products directly to consumers without being underwritten and guaranteed upfront is an affront to consumer fairness.

“The framework debate has been cleverly positioned by the institutionally aligned associations in concert with a small number of insurers to unfairly apportion a disproportionate level of blame on advisers to cover up their own failings.”

The AIOFP wants all life insurance policies written in plain English, and says insurers should release policy-rejection information.

It wants all policies underwritten at point of sale, to clarify the level of protection.