Insurance Churning: An Overview

If you are someone who has purchased an insurance policy, you might have heard the term ‘insurance churning’ at some point of time. Insurance churning can be simply defined as the practice of repeatedly buying and cancelling insurance policies to generate commissions and fees for agents and brokers.

This practice is generally frowned upon in the insurance industry, as it can lead to financial losses for policyholders and insurance companies. In this article, we will explore the concept of insurance churning in detail, its impact on policyholders and insurers, and how it can be avoided.

What is Insurance Churning?

Insurance churning, also known as policy flipping, is a practice where an insurance agent or broker encourages a policyholder to replace an existing insurance policy with a new one with the same insurer or a different one. The primary aim of this practice is to generate commissions and fees for the agents and brokers.

The insurance agent or broker may try to convince the policyholder that a new policy offers better coverage, lower premiums, or other benefits. In reality, the new policy may not offer any significant advantages over the existing one.

Insurance churning can take different forms. It can involve changing policies within the same insurance company, or it can involve moving policies to a different insurer. In some cases, insurance agents may even sell policies that are not suitable for the needs of the policyholder, just to earn higher commissions.

Why is Insurance Churning a Problem?

Insurance churning can have a negative impact on both policyholders and insurance companies. Here are some reasons why:

For Policyholders:

• Financial Loss: Policyholders may have to pay higher premiums and other fees for a new policy, which can lead to financial losses.
• Loss of Coverage: Switching policies frequently can lead to gaps in coverage, which can be detrimental in case of claims.
• Confusion: Policyholders may find it difficult to keep track of their policies and understand the coverage they have.
• Impact on Credit Score: Cancelling and buying new policies frequently can impact the credit score of policyholders.

For Insurance Companies:

• Higher Costs: Insurance companies may incur higher costs in underwriting and issuing new policies, or in processing cancellations and refunds.
• Loss of Revenue: Insurance companies may lose revenue if policyholders cancel their policies due to churning.
• Reputation Damage: Insurance companies may suffer reputational damage if their agents or brokers are found to be engaging in insurance churning practices.

How to Avoid Insurance Churning?

Here are some ways to avoid insurance churning:

• Do Your Research: Before buying an insurance policy, make sure you understand the coverage, terms, and conditions. Compare different policies and prices to make an informed decision.
• Stick to Long-Term Policies: Avoid policies that have short cancellation or renewal periods, as they may encourage churning.
• Check Cancellation Fees: Before cancelling a policy, check the cancellation fees and other charges that may apply.
• Be Wary of Unsolicited Calls or Emails: Be cautious of insurance agents or brokers who contact you unsolicited and offer to sell you a policy.
• Report Suspected Churning: If you suspect that an insurance agent or broker is engaging in churning practices, report it to the relevant authorities or the insurance company.

FAQ

Conclusion

Insurance churning is a practice that can have negative consequences for both policyholders and insurance companies. It’s important to be aware of this practice and take steps to avoid it when buying and renewing insurance policies. By doing so, you can ensure that you have the right coverage at the right price, without falling victim to unethical practices.