General insurance commissions are still subject to an Advisory Quality Review Recommendation, but brokers who offer personal advice to private clients require written approval to be compensated in this way.
The Review, led by reviewer Michelle Levy, published its Conflicted Remuneration Paper last week, outlining why it supports maintaining commissions, while acknowledging that the arrangement creates a “conflict” that can mean that consumers may not receive quality advice when brokers are paid product issuers.
Legislative changes in recent years after the Hayne Royal Commission have “reduced” the risk that consumers will not get good advice, the newspaper said. The changes include measures related to anti-hawking, deferred sales of supplemental insurance, design and distribution requirements, and commission caps for consumer credit insurance.
“The general insurance industry is changing voluntarily and in response to recent legislative changes,” the paper said.
“We have been told that because of these changes, many of the key drivers of misalignment between industry incentives and consumer interests, such as volume premiums and junk products, have stopped or are about to stop.”
Brokers are pleased with the recommendation to keep the commission model, but are concerned about the written consent requirement, pointing out that when issuing a retail financial services guide, commission details are already mandatory disclosures.
The new National Insurance Brokers Association (NIBA) code, which went into effect this month, requires members to disclose their compensation, but that obligation has been postponed to next year pending the outcome of the advisory review and ongoing member consultations.
CEO Phil Kewin says having to get customer consent in writing could be “potentially problematic” but is confident this can be ironed out.
“We have to be specific about what that means. Sometimes customers just don’t respond,” Mr Kewin told the insurance companyMESSAGES.com.au. “If you put the commission on the invoice and then the premium is paid, does that count as consent? These are questions that we can work through.”
Consumer advocate Choice insists commissions must be cut and is unconvinced the proposed written consent measure will protect customers.
“Disclosure is an ineffective form of consumer protection. Conflicts need to be resolved, not simply disclosed,” said Patrick Veyret, Choice’s chief of policy and government relationsMESSAGES.com.au.
“It is crucial that general insurance commissions must be banned. It is long overdue that this pernicious loophole be closed.”
Click here for the Conflicted Remuneration Paper.
