Level up for the better

While there are many bad reasons for churning, there are also good reasons for a client or broker to motivate a policy change.

However, even brokers with the best of intentions can be guilty of churning for the worse. It is therefore important that brokers are very sure that their clients truly benefit from a change in their policies.

Benefitting the client

As financial products evolve, and greater or more comprehensive benefits are released, changing to one of these products could be to the benefit of the client.

Clients’ needs can also change over the years, and there might be another product that better suits their needs. Churning will place the client in a better position of cover.

However, when a client switches over to a new policy, it generally means that they will have to undergo medical underwriting. This might not be in the best interest of the client as their age or health status might lead to loadings or exclusions which were not applied on their previous policy.

Don’t navigate by cost

The most common reason why clients want to change policies revolve around premiums and cost saving. This might well be one of the worst ways of deciding whether or not to replace an insurance product as cost is but a small aspect of the greater picture.

It is very important to consider the products and benefits underpinning these costs. What a client often fails to see is that a saving in cost often translates into a reduction in the benefits enjoyed.

Understand the implications

This can be compared with buying a premium sedan versus a budget hatchback vehicle. Due to insurance being an intangible product, the client does not physically see a hatchback next to a sedan and therefore they do not see the benefit of having the extra boot space, or the other luxury benefits like leather seats and a multimedia system.

It is critical for brokers to ensure that clients understand the implication of their decision to change policies. For example: clients are also often lured by the additional benefits such as loyalty schemes. Again, this may be unwise since these benefits usually do not amplify the actual insurance cover but merely acts as marketing tools to sell the product.

Furthermore, changing a long-term policy normally means that the client has to pay new business rates.

Due to insurance products typically being priced using age, the older the policyholder, the more expensive the premium. Essentially, if a 50-year-old client replaces a policy they initially took out at 25, they will be given a premium based on their current age.

This means that they lose out on the possibly lower premium rate they received on the previous product.

Understand circumstances

It is therefore critical for the broker to comprehend the client’s personal circumstances. With a thorough understanding of the client, a sufficient insurance portfolio can be constructed to ensure that the client’s needs are addressed properly. A churn in order to fulfil a bona fide need that is not covered by the client’s current products is a change for the better.

Insurers can of course also do their part to avoid losing hard-earned clients to churning. Companies need to enhance their offerings without creating the necessity to cancel existing products.

The focus in our industry is increasingly shifting to how brokers and insurers can add real value for their clients. A quality financial plan, underpinned by the most appropriate products for a client’s specific needs could certainly mean the difference between churning and changing for the better.