Is greater transparency the panacea broker commissions need?

The submission from the National Insurance Brokers Association (NIBA) to the government’s Quality of Advice 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 (pictured above) said 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.”  

Matthew Bates, managing director of the brokerage Bell Partners Insurance in Sydney – and some others in the industry – has a different but not altogether contrary view.

“I think this is a really good debate and conversation,” said Bates. “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.”

Bell Partners’ income is split almost evenly between commissions and fees.

Other’s stand behind NIBA’s position on remuneration.

“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 Steve Sloan, general manager of digital and communications for the Ausure network of authorized representatives (ARs).

Read more: NIBA delays implementation date of new Broker Code’s remuneration section

But early this month, NIBA delayed the implementation date for the section of the new Code dealing with remuneration by one year. However, the rest of the Code will still come into force on November 01, 2022.

IB asked Kewin if the delay was just an implementation issue or a sign that some parts of the industry are not very happy with the transparency obligations in the new code?

“I think it’s a combination of both,” said Kewin during a phone interview. “We’d hoped to have the code up and running in 2022 and that everyone would be able to comply with the code – although I hate that term comply because the code is about an undertaking as to the way of business and how we conduct ourselves with our clients.”

However, he said once the Code was launched in March, there was a realization that the commission disclosure obligations “require significant change.” According to Kewin, the challenges include the need for consistency and automation across the systems brokers use in relation to their commissions.

“There’s also the training and processes around disclosure,” he said. “There are conversations that need to happen between brokers and their clients, particularly existing clients, that have never happened before.”

Kewin said it “became quite clear” that more time was needed to ensure implementation was effective and “beneficial in their conversations with clients.”

“It is a significant change both in the processes and in the way that some brokerages do business,” he said.

The NIBA CEO said some have argued that 12 months is too long of a delay.

“Ordinarily, if this was done by legislation, it would be something like a two-year implementation period so we’re still doing it in less,” he said.

However, he said NIBA is encouraging brokers to implement the new code in its entirety as soon as they can.

“There may be teething issues,” he said. “That’s what we want to avoid – those last-minute delays and issues around people concerned that they’re not complying or they’re breaching.”

The NIBA CEO accepts that not everyone in the industry supports the new code’s provisions on greater transparency around remuneration.

“I can’t speak for everyone and not everyone is on board,” he said. “Part of that is in our messaging. At our gala lunches at the moment, I’m having good conversations with brokers and some are still asking the question: ‘Why would we introduce something that that our clients are not asking for, and that the government is not asking for, and that potentially creates more work for us?’”

He said there’s also a concern that disclosing commissions introduces a race to the bottom on fees.

“But the challenge we’ve got is that it’s bigger than just the individual clients; it’s community expectation and what we think the government and the regulator might look at as being acceptable transparency,” he said.

He said the government could leave the industry as it is now or “threaten to ban commissions because they’re not disclosed – because that is the potential reality.”

Read more: Is it time to end some broker commissions?

However, IB has spoken to some brokers who would like commission to go in some insurance areas and others who think that commissions in whatever shape or form, transparent or not, can predispose brokers to being biased.

“That’s a really good question because if it’s transparent then there’s nothing to hide,” said Kewin. “So, it’s not a hidden incentive.”

“I respect those who feel that their model can be fee only,” he said. “But likewise, they should respect the fact that one size doesn’t fit all for clients and one size doesn’t fit all for brokers in terms of their business model.”

Kewin said that brokers should be able to operate in a way that suits them.

“I believe that transparency eradicates any issues around the potential conflicts [of interest] in insurance,” he said.

But how enforceable are the transparency obligations in the new Code?

“If you are a member of NIBA then you are bound by the Code,” said Kewin.

IB asked what the consequences of not complying with the Code would be – eviction from NIBA?

“That would be the absolute extreme,” said Kewin. “What brokers want is all brokers to be acting professionally and ethically.”

He said the Insurance Brokers Code Compliance Committee is there to monitor, counsel and help brokers comply with the Code.

“It’s not a regulatory body there to act as a sledgehammer for someone who’s not adhering to the code,” he said.

Kewin hopes that after the Quality of Advice Review’s verdict, commissions will be intact and NIBA’s new Code becomes “an industry standard.”