Commissions: an alternative view

The National Insurance Brokers Association (NIBA) has been very clear about commissions – banning them would cause “significant detriment” to the industry and consumers.

NIBA lists a number of “adverse effects” in its submission to Treasury’s upcoming Quality of Advice review, if the general insurance exemption from the ban on conflicted remuneration is removed.

These include higher insurance premiums, reduction in cover for unusual or niche risks, reduction in the affordability of advice and lower claims settlements. Many consumers won’t be prepared to pay a fee, NIBA says, so access to critical advice will suffer.

But not everyone agrees, and insuranceNEWS.com.au has spoken to brokers with different views.

Lisa Carter, the MD at Brisbane-based Clear Insurance, says she moved her business to 100% fee-for-service last year and no longer collects commissions.

The Insurance Advisernet authorised representative says she is “passionate about transparency” and the industry should move to an hourly rate structure “like accountants and lawyers”.

She says this would give clients “certainty and clarity” around the cost of their insurance programs.

“Clients value our transparency and honest advice; it retains clients and supports business growth,” she told insuranceNEWS.com.au.

“People want transparency, it’s the way of the future, and with growing regulatory requirements we must provide professional advice that protects businesses and livelihoods.

“Change is happening…so the sooner everyone in the industry jumps on board with new thinking, the quicker we can close the skills gap and move to fee-for-service advice.”

She says regaining consumer trust is vital.

“People don’t trust or understand what they are buying, and when brokers receive commissions it doesn’t leave a good feeling.

“It’s a grudge purchase that stems from a lack of understanding. Moving to fee-for-service, as we have, without commissions, assures that our advice serves what’s best for our clients. It removes the sense of being oversold or the hard sell.”

Another experienced broker, who asked not to be named, contacted insuranceNEWS.com.au after reading NIBA’s submission.

He says he also moved to a fee-for-service model last year, and the vast majority of his clients have been happy to pay.

Removing the commission reduces the premium, he says, and there’s no reason for insurers’ risk appetite to change.

He says the current system charges some clients too much, and others too little for the services they receive. There should be a correlation between cost and how many hours a broker spends working on a client’s business, and it’s fair for those with complex risks to be charged more.

“My expectation is, of course, that [some clients are] being subsidised by other clients that are clearly paying too much for their advice. I wonder how they would feel about being overcharged.

“I am sure that many high premium-paying clients would be very much happier paying for every session of advice when they actually find out how much commission they have already been paying.

“A ‘user pays’ model versus a ‘sometimes you’ll pay more and sometimes you’ll pay less than you use’ model has to be preferable.”

NIBA says broker models vary “depending on the type of client and the broker’s particular area of focus”.

“The 2022 Insurance Brokers Code of Practice enables brokers and their clients to work with a model that is most suitable to them, be it fees, commissions or a combination of both,” CEO Philip Kewin said.

The Quality of Advice Review is being led by financial services lawyer Michelle Levy. A report will be provided to the Government by December 16.