The lack of data on the “churning” of life insurance business raises questions about legislating against the practice, a life insurance dealer group director says.

Synchron director Don Trapnell says the group approached four major life insurance companies to obtain statistics on churning, but none was able to furnish any meaningful evidence of the practice.

“We believe the Financial Services Council’s (FSC) views on the topic of churning are ill-placed and wrong,” he said. “Yet the Government seems likely to press ahead with regulation.”

Mr Trapnell says any regulation to control churning will unfairly penalise honest advisers who act in the best interests of their clients.

The Future of Financial Advice (FOFA) reforms are proposing a substantial repayment of the upfront commission if a client terminates the policy within two years and flat commissions for advisers if they move a client within five years.  

Mr Trapnell says advisers are expected to review clients’ insurance within five years and make recommendations where it is appropriate.

“Under FOFA, there will be a financial penalty if they don’t.”

He says moving clients from one policy to another is done for a variety of reasons that don’t involve gaining more commissions.

“During the past few years, all the life companies have had a very strong push to try to reduce their lapse rates and increase their rates of retention of the policies on their books,” he said.

“To aid them in this cause, the FSC appears to have taken statistics relating to lapse rates to the Government and convinced them that they are evidence of adviser churning.”

Mr Trapnell says life companies count any policy that discontinues, for any reason, as part of their lapse rate, including policies that have run their course and death claims.

“Policies which lapse for these reasons cannot possibly represent churning because they are not rewritten,” he said.