Good compliance creates great practices

[ June 5, 2015 ]

ASIC’s churning concerns

You will appreciate I am particularly sensitive to allegations that advisers churn clients’ insurance policies. ASIC is concerned about it: ASIC commences churn enquiry. And therefore I am concerned about it too. So this week we focus on what more can be done to make sure clients’ insurance policies are not churned.

Your clients’ duty to disclose information to the insurer

First, let me reiterate, once again, that insurance contracts are subject to a duty of utmost good faith between the insured and the insurer. This has a number of implications, including the client’s duty of disclosure. In summary, everything and anything that may effect an insurer’s decision to accept an insurance application must be disclosed by the insured. More than once we have seen conditions as serious as cancer deliberately concealed from the insurer by a client. In summary, never let your client conceal salient facts from the insurer, or make a false statement to the insurer. If you are aware of concealment it can be a fraud, with obvious consequences. Don’t allow it to happen. Make sure your client understands their obligations to disclose relevant facts to the insurer and the consequences of non-disclosure include the rejection of claims by insurers. Make sure your client discloses everything. Some time ago we changed our standard SOA terms to include an acknowledgement by the client that they have disclosed all relevant information to the insurer. This is designed to protect you from a client later wrongly complaining you encouraged them, complicity or implicitly, to not disclose a relevant matter, such as a serious health condition, to an insurer.

Four further anti-churning measures: further protection

We are introducing four further anti-churning measures. These are:

  1. copies of all client and insurer correspondences are to be forwarded to as they come to hand. These documents include the signed SOA, application forms and duty of disclosure checklist/confirmation and all correspondence between you and your client and you and the insurer. Everything. These documents will be reviewed and approved by the compliance team before commissions are paid. There will be no delays in commission payments provided all is in order;
  2. the definition of a “contentious SOA” is expanded to include recommendation for a new policy where the old policy is less than three years old. This means the draft SOA must be submitted to the Dover compliance team for review before it is sent to the client. The draft SOA must explain why a new policy is being recommended, why this is in the client’s best interests and appropriate to the client, and why a reasonable financial planner would agree that this is the case. Obviously the only acceptable reasons are lower premiums, better cover, or both;
  3. random client files reviews designed to ensure the SOA provided to the client is the same as the SOA provided to Dover, and all appropriate compliance procedures have been met;
  4. a new mandatory sentence in the “client’s obligation” section of each SOA reading: “ASIC has expressed concerns about churning risk insurance policies. Dover shares these concerns and does not allow churning. By accepting our risk insurance recommendations you acknowledge they are in your best interests, are appropriate to you and are not motivated by any other criteria.”

Please follow these procedures from Monday 8 June 2015 on. They are designed to defeat any later claim by a client that there has been a churn. Good compliance creates great practices. Please do not hesitate to contact me should you wish to discuss these changes or if you are uncertain as to what is required. I am more than happy to take on adviser recommendations on how to make the anti-churning measures work more efficiently.

The Dover Group