Thought bubbles, financial advice and insurance intermediaries

Dallas Booth

CEO, National Insurance Brokers Association of Australia

We know 2016 was a challenging year for many insurance broking firms, and while brokers have been working on their business challenges and serving their clients’ interests, here at NIBA we have been working hard to stop unnecessary and irrelevant “reforms” being applied to insurance brokers.

Thought bubbles

The most frustrating thing about what we do is the need to constantly respond to thought bubbles, which gain political momentum, and then become hard to resist.

For example, some Federal Members of Parliament think it is a good idea to have an insurance aggregator site, run by the government. So just before Christmas, they established a Senate inquiry into the general insurance industry in Australia, and three of the six terms of reference relate to comparison or aggregator sites.

The most annoying thing about this is that there is no clear issue or concern. No evidence of the community suffering at the hands of the general insurance industry. No signs of people losing their life savings or the roof over their head because of inappropriate insurer behaviour or systemic bad advice by insurance brokers.

The Senate inquiry will also look at increases in the cost of home, strata and car insurance over the past 10 years compared to wage growth over the same period. At the end of the day, the two are not related at all. The past 10 years has seen the general insurance industry pay billions to help Australians recover from a whole series of cyclones, floods, storms and fires. The industry has done this despite the Global Financial Crisis, which decimated general insurance companies in North America and Europe. Insurance companies operating in Australia met their obligations, and paid their claims, during some of the most financially challenging times since the Great Depression in the 1930s.

So what does NIBA do about thought bubbles like this?

We get in early, understand what is going on, try to assess the potential impact on insurance brokers, and start a process of information exchange and lobby to limit any negative impact as far as we possibly can. And at all times we have to use arguments and facts that stand the test of challenge.

Fortunately, our arguments are based on a very strong commitment by insurance brokers to act in the best interests of their clients. Brokers have done this for many, many years. Even when there are failures, clients are at worst inconvenienced for a short time but their insurance cover is virtually never at risk. That has not been the history of other parts of the financial services industry.

Some good results

In recent years, we have been able to convince the government and the regulators that insurance brokers are not part of the problems they see across the financial services industry.

In the FOFA reforms, we had general insurance carved out of the ban on commissions and the best interest duty applicable to general insurance was largely consistent with the previous obligations on brokers.

We also managed to get general insurance carved out of the legislative package which will require financial advisers to have university degrees. This package is currently before the Federal Parliament. NIBA is a strong supporter of high standards of education, ethics and professionalism in insurance broking, but it was not at all clear that mandating university degrees for insurance brokers would lead to better advice for clients.

Ongoing challenges

We have been and are still talking with Treasury about the proposed model for industry funding of ASIC. The government is determined to proceed with this exercise and our goal is to make sure the impact on brokers is as small as possible. After all, ASIC is not spending substantial time and effort on general insurance intermediaries, so brokers should not be contributing substantial funds to its regulatory operations.

We are looking closely at the proposed new obligations on distributors of financial products and proposed new ASIC powers to intervene in markets. Our initial assessment is that there will not be too many concerns for brokers because the obligations will not apply when personal advice is being given to the client. But the devil will always be in the detail, and we will examine the package very closely before making our submission to government in early March.

We are very worried about some recommendations coming out of Parliamentary Committees looking into the banking system. Making claims handling a financial service is one of the suggestions we are concerned about. We will challenge the thinking behind some of these recommendations if they are going to apply to general insurance.

The value of insurance brokers

As well as testing and challenging proposals, we also take opportunities where we can to explain to Members of Parliament and the broader community the true value insurance brokers provide to their clients. We will do this at the forthcoming Parliamentary inquiry into general insurance. There are also many positive stories that we will deliver to the Parliamentary inquiry looking into consumer protection mechanisms in banking and insurance.

Our focus is mainly the Federal Government and Parliament and ASIC, but there are also a number of issues at the state level where we are also heavily involved. The abolition of the emergency services levy in NSW is just one of those.

So, while brokers will spend 2017 developing and growing their businesses, NIBA will be challenging and testing a wide range of thought bubbles, and trying to make sure “reform” only happens where there really is a problem and where true reform really is needed.