Poaching risk to life policies

PUBLISHED : Sunday, 14 July, 1996, 12:00am
UPDATED : Sunday, 14 July, 1996, 12:00am

POLICYHOLDERS could be the biggest losers in the poaching war being fought among the territory's major insurers.

Last week National Mutual, the territory's only listed insurer, claimed that about 2,000 policies with annualised premiums totalling $12 million could have been poached.

Some industry observers are claiming that the practice is widespread and that the alleged churning revealed by the row could be the tip of an iceberg.

The alleged problem arises because in some cases agents are encouraging their clients to follow them across to the new company when they change jobs.

This means the clients have to cancel their old policies and take out new cover.

The practice - known as twisting - is a breach of the Life Insurance Council's code of ethics and could result in the offending sales staff being de-registered.

Twisting often occurs early in the term of the policy - typically after about two or three years into the term - and will result in heavy loss for the policy holder. Insurance companies are generally tight-lipped about how they structure the charges for their policies.

But anecdotal evidence shows most of the cost of setting up the policy, which includes administration and commission payments, is deducted from the premiums paid during the first few years.

It is clear that a client surrendering a policy during that period will receive very little - if anything - from his premium payments.

National Mutual has alleged that its computer systems have revealed former sales staff could have twisted about 2,000 policies during the first six months of the year.

Top Glory sales staff are alleged to be responsible for about 45 per cent of the sales, with Canadian Eastern Life Assurance accounting for the remainder.

The bulk of the policies involved are believed to be whole of life. The Life Insurance Council has introduced measures to try to stem possible abuses.

Those asked to switch policies are now obliged to complete a customer protection declaration.

The statement, signed by the client, states that he or she is aware of the potential disadvantage of early surrender of their policies.

This means that an insurance sales person making misleading or inaccurate statements or comparisons or failing to disclose details in order to induce someone to buy a policy is in breach of the guidelines.

But an industry insider said: 'The controls introduced go some way to help, but the issue is enforcement.

'At the end of the day you are looking at the whites of the eyes of the sales person.

'You can lead investors to the paper work but you cannot force them to read it. In real life, disclosure is something on paper whereas sales is very much a one-on-one, face-to-face action.'