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Churning

04 July 2006 Angelo Coppola

Dear editor

* I lost

Iam of the "old school" when churning was a no no.... your commission got zapped if you churned. With the new dispensation and "peoples rights", I am still extremely reluctant to suggest a client cancels an existing policy in order to sell him a new one. Unfortunatelyfrom time to time a client cancels the policy without a courtesy call to advise the existing Broker.

Recently however I did receive a call from a client who is in his late 60's informing me that he had cancelled hos Old Mutual Greenlightas another company could give him an extra R80 000 cover for the same premium.

I have ascertainedthe initial premium is more or less the same,and thatthe broker involved did explain that the new product is age related and premiums would increase accordingly. Does the client fully understand the long term implications ? Methinks not

 

Having advised the family for the past 10 years and thusknowing their financial situation-----no pension, inadequate savings ,still working on a job I am deeply concerned how this person will be able to maintain the obligatory premium increases.

I have explained this to no avail... the "sharp talking salesman" has won. "People wish to be deceived" it seems. Not to mention this type of broker who brings the industry into disrepute.

* What can I do?

In response to your article on Churning which I found most interesting I have a letter from Sanlam to myself in respect of two policies that my clients, husband and wife, are contributing R4 800 per month, each, to. Sanlam is reducing the investment value of the retirement annuities by over R54 000 per retirement annuity, if my clients reduce the premium to the minimum premium of R150 per month. My clients are moving to Australia for five years to work on contract after being retrenched here in South Africa, and they do not wish to have to repatriate Australian dollars to South Africa to continue paying the high premiums.

I disagree with this practice for two reasons:

1. Nowhere in the contract does it state that penalties will be levied on "reduction of premium" the contract only refers to "stopping of contributions".
2. The original broker will have to pay clawback commission. I am still trying to establish the amount Sanlam will recover from the broker.

Sanlam's letter to me reads:

1. In response to my request of a detailed breakdown of charges applicable when the premium of a policy is decreased, " It is not possilbe to give a detailed breakdown, as we do not have a unique charge
for every expense." So how do Sanlam keep accurate books of accounts?
2. In response to my request of how much clawback commission they will recover " As commission is confidential information we cannot provide you with more information"
3. "The following is stated in the client's policy contract, regarding the premium reduction fee:

"Stopping payment of recurring contributions. Can I stop making recurring contributions?
Yes. If the sum to which the value of the policy investment has grown at that stage, less a premium termination fee, exceeds the minimum of R575.00, the policy will be maintained wihtout further premium payment. This minimum will increase from time to time.

If you stop making recurring contributions before the option date, this premium termination fee currently consists of the following:

R240 plus (this fee now R300) a percentage of the value of the policy investment at the time, plus a percentage of the savings premium at the time.

These percentages depend on the size of the savings premium, the amount of the negotiated commission, and when you stop making recurring contributions. At present, if you stop making recurring contributions on or after the option date, no premium termination fee will be charged. Sanlam Life may change this from time to time."

The premium reduction fee is determined the same as the premium termination fee. I am about to take this matter up with Sanlam's CEO, Mr L Lambrechts. I have asked for an actuarial calculation, but my feeling is that Sanlam is recuperating the costs from both the broker and the client and I would like to know what Sanlam is actually losing?

Do you have any recommendations as to how I can proceed with this matter?

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We have watched with interest as each of the country’s large life insurers report their 2021 life claims statistics, with soaring claims and claims values. That got us thinking: how do the big life insurers compare against one another, from an IFA perspective?

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