Churning of Life Insurance

Letter published in Straits Times

WITH reference to last Saturday's report ('Windfall for jumping ship'), there are many factors in the scrum by insurers to lure agents away from rival firms.


One is the client list of the agents, a consequence of which will lead to a churning of insurance policies. In such scenarios, clients are persuaded to cash in their existing policies to buy a new one.


To lessen the risk of such negative effects, the Life Insurance Association should consider organising seminars to educate the public. 


The association should have rules to ensure that agents fully inform their clients on the implications of surrendering their policies for another one. These measures seek to ensure that the public know the effects of churning and that their decisions are informed ones.


In the report, the association remarked that it took a serious view of churning or any activity that hurts a policyholder's interest. 


The association should inform the public about its penalties against errant agents who actively resort to churning. Such transparency may also deter agents who are thinking of resorting to this practice.


Such measures will not only help safeguard public interest against errant agents, but also maintain the high standards and reputation enjoyed by the profession.


Javern Sim 

http://www.straitstimes.com/STForum/Story/STIStory_554143.html


My view
The churning of insurance policies has been a serious problem over the past decades.  Many consumers had been the victims of this unethical practice and have lost large amount of their savings. 


The insurance companies are partly to blame, as they introduce new products, supposedly with better features, and give the chance for their agents to get unsuspecting customers to replace their policies. 


To overcome this unethical practice, it is necessary for the regulator to place limits on the amount of commission that can be paid on life insurance policies. This problem has been recognized in many countries and the appropriate action has been taken by the regulator.