Astute FSE develops policy monitoring system for SA's life industry

Astute, the financial services exchange that connects product providers with financial advisers acting on behalf of clients has developed a solution for the Life Offices Association (LOA) to monitor policy changes that signal a replacement transaction.

The system essentially monitors the process involved when a consumer cancels one investment policy and replaces it with another – often a costly procedure not always in the client’s best interests.

The LOA decided last year that it would outsource the administration and development of a policy monitoring system to Astute FSE. The new web-based system, called the Replacement Register, commenced operation on 1 December 2007.

Amendments to the commission regulations applicable to financial advisers came into effect from 1 March 2007. They were aimed at disincentivising commission-driven churn (policy replacement) not in the interests of policyholders.

In terms of the principles underlying the replacement regulation, replacing an investment policy with another is generally not in the policyholder’s interests where the replacement results in early termination charges. That’s because a new round of expenses is triggered and the improved charge structure on a new policy, where applicable, will not necessarily compensate the policyholder for the early termination charges.

As a result, the industry welcomed the amendments, a key aspect of which is that life assurers are prohibited from providing any form of up-front or discounted commission on a replacement policy if the early termination charges exceed 15%: only as-and-when commission is payable.

Said Biddie Biddulph (pictured right), Managing Director of Astute: “Life offices, under the auspices of the LOA, determined that a central policy monitoring system should be developed to facilitate the management of replacement policies between companies.

“We’re delighted to have been requested to provide a solution for the LOA and, given our IT infrastructure and capabilities, are confident of having developed a system able to accommodate, amongst others, different levels of infrastructure across life offices, and the different structures and complexities of insurance products.

“LOA members will benefit from a better understanding of the quantity and types of replacements taking place in the industry, while the system will also assist with implementation of the principles contained in the Statement of Intent, as well as associated commission regulation changes.”

Automated data processing has alleviated the administrative burden, while a centralised “rules engine” ensures consistency in determining when a replacement has taken place across and within life offices.