The move by the Financial Services Council (FSC) to stop churning in life insurance has been welcomed by the industry, although most don’t see it as a major problem.

Asteron EGM Jordan Hawke told insuranceNEWS.com.au churning “isn’t a major problem”.

“Advisers don’t wake up in the morning thinking they must churn a client,” he said. “The proposed standard won’t affect too many advisers.”

ClearView MD Simon Swanson told insuranceNEWS.com.au there are more important life insurance issues to worry about.

“There are a couple of advisers who churn, but it is not a major issue.”

The key components of the FSC standard will be the removal of “takeover terms”, which allows the relaxation of the normal underwriting process for replacement business in policies that are transferred by an adviser between insurers.

The standard also proposes that an adviser would have to pay back 100% of the commission if the policy lapsed within one year and 50% if it moved in the second year.

FSC CEO John Brogden says these proposals are in line with the Future of Financial Advice (FOFA) reforms.

“These changes ensure consistent industry practice that will support advisers and financial advisory networks as they adapt their compliance frameworks for the FOFA reforms,” he said.

“The FSC is clear that the time has come to address the practice of churn – in the interests of consumers, and to support financial advisers and a sustainable life insurance industry in Australia.”

Mr Hawke says Asteron has ways of checking if an adviser is churning clients and will put them on flat-rate commission terms when they are detected.

Advisers who churn polices also have an impact on a company’s insurance pool.

“If we see business moving in 13 months, we never see the money back,” he said. “We see this as the first step in self-regulation and that is a good move.”

Asteron has conducted a survey of more than 300 advisers that use its products and while the majority says churning is wrong, they have some reservations about some of the FSC’s proposals.

In the results seen by insuranceNEWS.com.au, 56% of advisers say removing takeover terms will not reduce churn, but 29.4% believe it will.

The push to punish advisers in the first two years of a policy also had a mixed result, with 65.4% of Asteron advisers polled saying it will reduce churn while 25% say it won’t.

The FSC will now start consulting with the industry, the Federal Government and regulators to produce a final draft of the standards by next year.

Its implementation date is expected to coincide with the introduction of the FOFA reforms when they become law.