'Churning' is a dirty word in the financial advisory industry. For ethical advisers, to be accused of 'churning' can be a slur on your character.
And no - it isn't the same as 'churning butter!'.
'Churning' means moving a clients insurance policy from one insurer to another. Unfortunately there are a portion of insurance advisers who do this on a regular basis - they move clients policies from one insurance company to another every 2-4 years.
Why would they do this? When a financial adviser puts in place insurance cover for a client, they generally get paid for this from the insurance company by commission. There are two main ways that commission can be paid:
1. Upfront commission with a small renewal commission or
2. Level or 'as earned' commission.
Most insurers pay 'as earned' commission for health insurance policies. The most common way for commission to be paid for all other insurers is for an 'upfront' commission to be paid to the adviser, based on the amount of premium on the policy.
As an Authorised Financial Adviser (AFA), we have a legal requirement to advise you of the commissions that we earn. This is disclosed in our secondary disclosure document and we are more than happy to discuss our commission and how it works with you. For more information on commissions - check out this blog article.
For the vast majority of advisers 'churning' to take advantage of commission is not a feature of the way that they work. As always however, there are always some bad apples that spoil the bowl.
Having said that - there have been such significant changes in insurance policy wordings and the type of insurance cover available in the last 4+ years, that there is often a genuine reason for advisers recommending changes to clients cover.
For example, I have a number of clients where we put in place trauma insurance for them around 12 years ago. They are still more or less in the same health as when we put that cover in place, and they need the same or more trauma insurance cover. Not only has medical science changed, and therefore the definitions that apply to be able to claim on an insurance policy since then, but the types of conditions and policy benefits have changed as well.
Most crucially, at Moneyworks, we are major advocates of working with insurers who have a 'policy wording passback' built into their policies. This means that any future changes and developments will automatically be passed back to those clients. Therefore, there should be no need to move those clients in the future.
A number of leading insurers have what are called 'transfer terms'. This means that if a client has an insurance policy already in place, which was accepted as 'standard' (ie no loadings or exclusions), they will accept that client (for the existing level of cover) without applying the three - six month stand down period on trauma insurance for selected conditions, or the suicide exclusion for 13 months.
However, to get 'transfer terms' with your policy - you need to have an adviser who knows how to apply for this. Otherwise, you could end up with no cover for those conditions, with your new policy.
One of the interesting things in this article below, is that Pinnacle Life is quoted. Remember, Pinnacle is the insurer who advertises that they will give you a straight up 20% discount on your existing premium if you move your life insurance to them. That is 100% 'churning'.
The good advisers out there (of which there are a number) - are likely to only recommend that you move your insurance cover for good reasons - not just to 'save money'.
If you would like some information from Moneyworks on the options available for you, and would like some quotes, check out our 'get quotes now page'.
If you have any thoughts or opinions that you would like to share, visit us at our Facebook or Linked In pages, and comment.
Other blog posts you might be interested:
By Carey Church