Over the holiday period, the Australian Competition and Consumer Commission (ACCC) released their third and final report of the Northern Australia Insurance Inquiry. The report is the product of more than three years of investigations into the availability and affordability of home, contents and strata insurance across the northern areas of Australia. In order to complete this inquiry, the ACCC used statutory powers to gather extensive information from insurance companies operating in the regions.
Most concerning for insurance brokers was the inclusion of an earlier recommendation from the 2019 interim report which called for the removal of the exemption for brokers under the current conflicted remuneration ban. Although not a new recommendation, it remains worrying for both the National Insurance Brokers Association (NIBA) and its members.
The report also contained a number of concerning findings which confirm anecdotal evidence provided to NIBA by members. Issues highlighted by the report include;
- The unprofitability of the market for insurers and the resulting lack of competition between providers.
- Significant levels of under-insurance and non-insurance compared to the rest of Australia
- Difficulties in understanding and comparing insurance products has resulted in consumer inertia.
Many of these issues would already be common knowledge to brokers servicing these regions. In fact a number of the issues identified were previously highlighted in a 2016 report by the Northern Australia Insurance Premiums Taskforce.
In this hardening market it is critical that property owners, especially those in northern Australia, have access to tailored, expert advice regarding their general insurance needs and the products available to meet those needs.
Do commissions pose a problem?
This report is not the first to call for an extension of the conflicted remuneration ban. However, these reports have not yet been able to identify any evidence of systemic poor outcomes for consumers as a result of broker remuneration structures.
Despite being within the scope of the Royal Commission into Misconduct in Banking and Financial Services, there was no evidence referred to by the Royal Commissioner of poor client outcomes as a result of broker remuneration structures. Nor could NIBA find any evidence in any of the materials published by the Commission.
The replacement of commissions with a fee-for-service model in other areas of financial services has not enhanced community access to financial advice anywhere in the world. Changes to remuneration arrangements for financial planning and investment advice have resulted are in a large number of advisers leaving the industry at a time when multiple generations are entering major periods of lifestyle change and uncertainty and are in need of sound financial planning advice and support.
We know from the Deloitte Access Economics Report that insurance brokers offer a wide range of benefits and value to clients. This is underpinned and supported by the commission arrangements that currently exist within the Australian market.
NIBA accepts that there is a theoretical potential for conflict to exist. But where is the evidence of issues within the current structures, and where are the client detriments that need remedial action? NIBA believes that existing statutory obligations to manage and minimise conflicts of interest and to act in the best of the client at all times are sufficient.
NIBA will provide a detailed response to the Federal Government, outlining broker concerns and highlighting the potential impact on brokers and their clients. NIBA strongly believes that these recommendations are unlikely to provide any significant relief to property owners in northern Australia, and will not ease the availability and affordability issues in that market.
NIBA CEO, Dallas Booth said, “We will continue to prepare for the 2022 review of remuneration arrangements in general insurance, as recommended by the Royal Commission. NIBA has already started this process by commissioning the Deloitte Access Economics Report on the economic role and value of insurance broking, and will continue to liaise with government, regulators and other stakeholders on the important work brokers do for their clients and the broader community.”
“Let’s not have change for change sake. Let’s have reform only where it is warranted, based on hard evidence of real issues and concerns. And before change are made, let’s really understand what happens if the reform is implemented, and ask the question: Will the community actually be better off?”
The ACCC indicated they look forward to making submissions to the 2022 review recommended by the Royal Commission – So does NIBA.