What does 'churning' refer to in the insurance industry?

Churning refers specifically to the practice where an insurance agent encourages a policyholder to replace an existing insurance policy with a new one in order to earn a commission on the new policy. This practice can be detrimental to the policyholder, as it may not serve their best interests and can result in unnecessary expenses or loss of coverage benefits.

Agents may push for replacements under the pretense of offering better coverage or lower premiums, but often the primary motive is to generate new commissions for themselves. This behavior is considered unethical and is prohibited under many states' insurance regulations.

Understanding this term is crucial for both agents and consumers, as it helps identify unethical sales practices that could harm a policyholder's financial standing and overall insurance coverage. Recognizing churning helps ensure that clients receive the most appropriate insurance products for their needs rather than being driven by a salesperson’s incentives.