BMS CEO on broker remuneration and transparency
The government’s Quality of Advice Review has put broker commissions from insurers in the regulatory spotlight again. That review is expected to release a report in December. This year, the National Insurance Brokers Association (NIBA) also issued a completely revised Insurance Brokers Code of Practice with stronger fee transparency obligations. Andrew Godden, CEO of BMS Australia, the global brokerage that provides specialist insurance services is a strong advocate of transparency. He told Insurance Business TV how his brokerage implemented the new Code’s transparency requirements and his view of broker remuneration issues.
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Danny: [00:00:21] Hello and welcome back to Insurance Business TV. I'm Danny Wood, news editor of Insurance Business Australia. Today we're revisiting the hot topic of broker remuneration commissions, fees and the whole issue of transparency. We're joined by Andrew Godden, CEO of BMS Australia, a global brokerage that provides specialist insurance and reinsurance services. Welcome, Andrew.
Andrew: [00:00:44] Thank you, Danny. Nice to be here.
Danny: [00:00:46] Nice to have you here. Now, the government's Quality of advice review expects to announce recommendations in December, and it's put the commissions brokers earn from insurers in the regulatory spotlight yet again. And also the whole issue of transparency. First up, where do you stand on the issue of broker remuneration? I mean, should it be fees, commissions or does it have to be a mixture?
Andrew: [00:01:07] Well, I'm of the view that it can be a mixture. There are clients where commissions suit better. You may get to a certain size where it makes more sense to be charged a fee in lieu of commission, and there are instances where the commission may be so small that some sort of administration fee on top is valid and warranted.
Danny: [00:01:30] So how do you do things at BMS? What's the fee or commission situation?
Andrew: [00:01:35] Well, it's a bit like my view. It's optional. The brokers would normally negotiate that with their clients. And the main thing really is around transparency and that the clients understand exactly what they're paying and what they're getting in return for it.
Danny: [00:01:51] You mentioned transparency, and that was a big focus of neighbors, new insurance brokers, Code of Practice that was released earlier this year. What are your general thoughts on that updated code itself?
Andrew: [00:02:04] Well, I think that really solves the issue, in my opinion, even when we're talking about any conflict of interest, if it's disclosed and transparent, it largely deals with the conflict. So my view is if brokers are completely transparent and clients understand what they're buying and how the transaction works, then that resolves the issue. And remember, we're not only getting paid for that part of the transaction, we're on the hook for a 12 month period. We're there for advice for changes where the business moves, but also for clients. So it's a big commitment and we should be paid accordingly as long as the client understands. That's the key for me.
Danny: [00:02:47] That new neighbor code has some, I guess, stronger transparency obligations. And I know you've said at BMS that you like to lead the way in broker transparency and you actually implemented these transparency obligations and some brokerages decided it was too hard, which has led to delaying the implementation of this remuneration section of the code. I mean, what did you do exactly and what were the challenges implementing that?
Andrew: [00:03:17] Look, I have some sympathy for those who have wanted to delay. I mean, if you're in the high volume areas, you would really need this to be supported by it. You'll need to make some technical changes and I guess we're all relying on our broking service providers for that. We're in the more mid-cap, large cap type corporate client world. So for us, almost every deal is done bespoke and face to face or person to person. So for us it's really just a matter of making sure whatever we earn, however we earn, it, is included in the client communications. In the meantime, we will look to amend the broking system to make sure it can be automated as well. But it was really just the brokers all getting together and deciding as a team. As a team, we wanted to do it. We didn't want to wait and we thought, you know, it's the old story. You should always do the right thing, especially when nobody's looking.
Danny: [00:04:16] I mean, you've successfully done it, but it does does seem to be a real sticking point with some brokerages. I mean, is it just the mechanics of implementing it? If you're a very big brokerage, is that is that the main sticking point, do you think, for them?
Andrew: [00:04:29] I think I think for 99% of the brokers, yes, that would be right. Most brokers do a really honorable job and for fair remuneration. So, yes, I think 99% of the brokers will support it. It might be a technological issue, for example, where a member of the steadfast group, Robert Kelly, the CEO of that group, is 100% behind this. Therefore, all of our members will be. So I think as an industry where supportive, the mechanics need to be dealt with, but you know, nine times out of ten it can be transparent without it, it's really just about open, honest communication.
Danny: [00:05:08] Andrew Godden, CEO of BMS Australia, thanks very much for joining us on Insurance Business TV.
Andrew: [00:05:14] Thanks for having me, Danny. Cheers.
Danny: [00:05:16] And thanks for watching. Bye for now.