"Churning" is a dirty word as far as the assurance industry is concerned and the major companies insist they have sufficient policing systems in place to catch the culprits.
"Churning" is the term used to describe the practice in the assurance industry where a policyholder is encouraged to cash in an existing policy, usually well before its maturity, and to replace it with a new one.
Sales people, whose earnings are mainly commission-based, gain from the practice because they are paid additional commission on each new policy taken out.
But customers always lose out: they unnecessarily pay additional commission and set-up charges, and the value of their long-term investment is undermined.
All those contacted by The Irish Times yesterday said the cancellation of a client's assurance policy would immediately set off alarm bells and trigger an investigation into the circumstances.
New Ireland flatly asserted that it had a policy of not accepting replacement business. Marketing actuary, Mr David Swanton, said the company would only accept a new policy for an existing customer if the previous policy was seen to be clearly not suitable for their needs. "If we see a cancellation and can match a new policy with the same customer, we would investigate it on an individual basis," he added.
In some cases, it might turn out that the customer is simply switching from one type of policy to another and in this situation the company would try to ensure they didn't pay further commission on the replacement policy.
Assurance policies are sold either by an assurance company's own sales force or through brokers, with many companies using these combined distribution channels to drive their business.
Hibernian deals exclusively through brokers, who - according to the company - are registered and bound to conduct their business in accordance with the guidelines laid down by the Irish Brokers' Association.
Mr John O'Briain, actuary with Hibernian, said that, while he could not state that "churning" had not happened with any of the company's policies, it would be rare. "It's not something we would come across regularly. We believe that prevention is better than cure, and would have a policy of routinely looking into the early encashment of policies and talk to our customers about it."
Over the years, Hibernian had broken off arrangements with a number of brokers, he added. But the numbers involved would have been very small.
Standard Life general manager, Mr Alan Ashe, said it was wrong to suggest "churning" was prevalent through the industry. His company mainly dealt with brokers but would keep copies of all policies written and contact any customers upon cancellation. "The key measure of `churning' is the number of policies that are maintained over a long period of time at any company."
