Churning is a specific form of conduct violation: inducing a client to surrender an existing policy and replace it with a new one -- not because the new policy genuinely serves the client better, but primarily to generate a new first-year commission for the agent.
Churning harms the client in measurable ways:
- Surrender charges on the existing policy reduce the client's accumulated cash value
- New policy premiums may be higher because the client is older
- The new policy may have a new contestability period during which the insurer could challenge claims
- The client may lose favourable terms grandfathered in the original policy
Twisting is the related practice of inducing replacement through misrepresentation of the original policy's terms. Twisting involves dishonesty; churning may occur even without explicit misrepresentation, simply by failing to explain the costs of replacement.
Both are disciplinable offences. Provincial regulations require specific written disclosure to the client before any life insurance replacement is effected (replacement-disclosure obligations are covered in Module 2).
Common mistake: confusing churning with a genuinely beneficial replacement. A client who has had a material change in health, coverage needs, or financial circumstances may legitimately benefit from a new policy. The test is whether the replacement is in the client's interest, not whether a new commission is generated.
Recall: How does churning differ from a legitimate policy replacement? Name two concrete financial harms churning causes the client.