Insurance industry professionals have two weeks to weigh in on Treasury’s Proposals Paper, a final stage in the government’s Quality of Advice Review. The document, prepared by an independent reviewer, outlines likely reforms across the financial services industry. One focus in the Proposals Paper - which is welcome news to the insurance industry - is reducing the regulatory burden.
The reviewer has recommended that ‘general advice’ no longer be regulated as a financial service.
However, the federal government’s review is also re-examining the issue of commissions, including the commissions brokers receive from insurers. The Proposals Paper, released at the end of August, contained no concrete sign that insurance broker commissions are under threat – but the review isn’t over yet.
“This paper does not include any proposals for life insurance and general insurance commissions nor other forms of benefits because we are still collecting information on these topics,” said the paper’s authors.
The National Insurance Brokers Association (NIBA) was concerned that broker commissions could be a target.
NIBA’s submission to the review argued that commissions are the basis of most brokers’ business propositions, allowing them to give affordable, quality advice to their customers. NIBA CEO Phil Kewin argued that the recently revamped Insurance Brokers Code of Practice, with its focus on transparency, is evidence that the industry can self-regulate with new standards that are “above the law.”
Insurance Business reached out across the industry to canvass different views on the issue of broker commissions, fees, and transparency.
Read more: Is it time to end some broker commissions?
Jonathan Frost (pictured above) is director of Bellrock Broking in Sydney. With 20 years’ experience, Frost is the firm’s construction and development insurance expert. His career charts the significant improvements in disclosure and transparency in his sector.
“We’ve come a long way since those days [in the early 200s] where, once you were dealing with a wholesale client, you really didn’t need to provide too much in the way of disclosure unless you were asked,” said Frost.
The Bellrock director also said that, 20 years ago, consumers probably didn’t have the same level of understanding around how insurance brokers were remunerated.
“That meant that there were some practices in place,” said Frost. “Things like profit shares, overriding commissions, enhanced exclusive arrangements where you could be getting up to 22.5% commission on placements without the need to disclose that, in fact, you were working as an agent of the insurer rather than a broker on behalf of your clients.”
Frost is confident that those issues have been addressed “and are being cleaned up.”
“At the same time I think consumers now are a lot more informed about practices in the broking industry and financial services more widely around remuneration and how brokers are remunerated,” he said.
Frost said, whenever feasible, his firm charges fees for clients so the remuneration relationship “becomes completely transparent.” However, he doesn’t believe commissions should go.
“I don’t believe that commissions can or should be abolished,” said Frost. “I think that there is a place for them.”
Much like NIBA, Frost argued that this issue revolves around transparency and fairness.
“Anybody who runs a business needs to make money to be in that business and some classes of insurance simply wouldn’t be profitable unless there were commissions attached to them,” he said.
Frost suggested that the crux of the issue is ensuring clients understand how and what they are being charged by brokers.
“I think that if you get a client to understand how you’re being paid and they understand exactly what you’re being paid,” he said, “and that discussion takes place at the time that the policy is put in force I think there is no issue with broker commissions being accepted, where reasonable, and accepted by both parties to the transaction.”
Matthew Bates, managing director of the brokerage Bell Partners Insurance, while not against all commissions, has a different view.
“I’m actually for removing commissions on certain types of policies - but not all at once - because I certainly think anything to make our industry more professional is a really good thing,” said Sydney-based Bates in an earlier interview with IB.
Steve Sloan, general manager of digital and communications for the Ausure network of authorized representatives (ARs) is strongly in favour of commissions.
“My personal opinion based on my own experience is that as risk professionals we get better client outcomes as a result of commissions and no-one in the industry should be afraid of the fees or commissions they make as a result of that,” said Sloan.
Treasury has said the Quality of Advice Review should be completed by December 2022.