‘Possibly problematic’: brokers cautious over commissions consent proposal

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Brokers have concerns over a proposal requiring retail clients to provide written consent giving them the go-ahead to receive commissions, cautioning the measure is “possibly problematic”.

Some intermediaries are keen to hear more details from Quality of Advice Reviewer Michelle Levy as she prepares to submit her report to the Government next month.

The proposal, if taken up by the Government, would apply to brokers who are giving personal advice to retail clients about their insurance arrangements.

Otherwise, the broking industry has responded mostly favourably to the Review’s other key proposal on commissions: general insurance commissions should remain exempt from the ban on conflicted remuneration.

The Review put forward the proposals in its Conflicted Remuneration Paper released this week, after examining data for key insurance products that brokers arrange for retail clients including motor, home and contents, travel and sickness and accident.

The Paper says “insurance brokers continue to play an important role in giving consumers access to financial product advice about what can and should be valuable financial products”.

It acknowledges the existing commission model in some cases does lead to a “conflict” for brokers and that this “conflict creates a real risk” that the quality of the advice provided is not as good as it would be if a client had paid directly for the advice.

But the Paper says the risk that consumers may not be getting quality advice from brokers who are paid commissions has been “diminished” by a number of recent changes to the law. These changes, made after the Hayne royal commission’s final report in 2019, covers a wide area including anti-hawking and deferred sales of add-on insurance.

National Insurance Brokers Association CEO Phil Kewin says the theme of the Paper is “broadly supportive” as has PSC Insurance Group MD Tony Robinson.

“It’s really positive that the Review both acknowledged the importance and role of the insurance broking industry and that the industry has already made significant change,” Mr Robinson told insuranceNEWS.com.au.

“Our industry plays an important part in ensuring appropriate insurance coverage is held and maintained and it vital that insurance broking services remain available and accessible to individuals and businesses.”

Mr Kewin has flagged the written consent proposal as “possibly problematic” for brokers but believes any potential hurdles can be ironed out.

“We need to flesh out what that means. Sometimes clients just don’t respond,” Mr Kewin told insuranceNEWS.com.au. “If you detail the commission on the invoice and then the premium is paid, does that count as consent? These are questions that we can work through.”

Under existing laws, brokers are required to provide retail clients a Financial Services Guide on information about their remuneration arrangements. And NIBA’s new Code that commenced this month requires members to disclose their remuneration but this obligation has been pushed back to next year pending the outcome of the advice review and ongoing member consultations.

Geelong-based Roderick Insurance Brokers Sales Manager Paul Codd says the written consent proposal “does sound problematic”. Regional brokerages often have a higher proportion of retail clients as they have traditionally preferred to have their insurance arranged through brokers.

He says administering retail policies is already resource intensive and has a high compliance overlay.

“So adding another layer of compliance will have brokers seriously reviewing whether it’s now financially viable to service retail clients under these circumstances,” he told insuranceNEWS.com.au.

“So if a number of brokers elect to exit the retail market this will simply reduce competition and expertise across the industry and ultimately disadvantage consumers.”

He says brokers already go to great efforts to be transparent around commissions.

“I would argue that virtually all intermediated clients are already aware that there is a commission component incorporated in their premium – it’s no secret,” he said.

He says forcing clients to take an active part in the compliance journey of a retail policy seems counter intuitive to the intent of the legislation and is of little value for the average consumer.

“It puts the intermediated market at a huge disadvantage against the direct players,” he said.

Click here for the Conflicted Remuneration Paper.