Brokers fight for retention of commission payments

The National Insurance Brokers Association (NIBA) has made a submission to the Treasury’s Quality of Advice Review arguing for the retention of general insurance broker commissions and highlighting the significant regulatory burden imposed on general insurance brokers as a result of ongoing reforms.

NIBA’s submission focused on the very real differences between risk advice and other types of financial advice and highlighted the significant impact the one-size-fits-all approach to regulation of financial advice has had on the general insurance industry. 

In the submission, NIBA argued that this approach has significantly increased the regulatory burden on general insurance brokers (the costs of which are ultimately passed on to clients) while having little impact on the quality of the advice being provided.  An example of this is the recently introduced Design and Distribution Obligations. 

NIBA’s submission also supported previous calls to rename general advice to more closely reflect the nature of the information being provided. It stated, “In NIBA’s view, the reference to ‘advice’ within the term ‘general advice’ is potentially misleading and may lead consumers to mistakenly believe the advice they are receiving has taken their personal circumstances into consideration.” 

This view is supported by ASIC research that shows that clients often do not understand the differences between general and personal advice.  The submission also cautioned Treasury against introducing a limited advice model due to the dangers such a model poses to clients. 

The majority of NIBA’s submission focused on broker remuneration, the benefits the current remuneration model provides and the impacts to clients if the exemption was removed.  The submission argued that the exemption for general insurance brokers would have a number of consequences for clients including; 

• a reduction in the affordability of advice; 

• lower claims settlements; 

• reduction in cover for unusual or ‘niche’ risks; 

• higher insurance premiums; 

• a reduction in competition; 

• an increase in underinsurance and non-insurance levels;  

• decreased community resilience to recover after natural disaster events such as floods and fires; 

• less access to advice outside major cities; 

• closure of general insurance brokerages, many of which are small businesses; and 

• increased demand for the services of the Australian Financial Complaints Authority (AFCA) due to a reduction in professional advice. 

In acknowledging the value brokers provide to their clients, the submission highlighted case studies provided by members that demonstrated the value of having a qualified insurance broker, especially at claim time.  

The submission also highlighted the significant protections already in place for general insurance broking clients including; 

• the obligation for brokers to act in the best interests of their client; 

• general licensing conditions e.g. to provide financial services efficiently, honestly and fairly, have in place adequate arrangements for the management of conflicts of interest;  

• ASIC breach reporting obligations;  

• the low number of AFCA complaints against brokers; and 

• remuneration disclosure requirements under the new Insurance Brokers Code of Practice in addition to the banning of contingent remuneration. 

In considering whether or not the exemption should be retained, NIBA’s submission argued that the review should have regard to the suitability of existing protections already in place to counteract any perceived risk. In addition, the review should consider the lack of evidence of negative client outcomes arising from the current broker remuneration model. 

NIBA argued that any changes to regulation should be subjected to a thorough cost-benefit analysis prior to being introduced. In NIBA’s view removing the exemption increases costs for clients and the broader insurance industry without providing any real benefits.

NIBA will continue to engage with the Treasury task force assigned to the review and the independent reviewer Michelle Levy.  In addition, NIBA encourages its members to meet with their local Federal MP to explain what they do and the value they provide to clients.  These conversations will be especially important to ensure that those voting on any legislation resulting from the review are aware of the impact it will have on the general insurance broking industry.  NIBA has developed a number of resources to help members with these conversations including a member advocacy guide, template letters and key messages.