Never-ending story: broker code debate maintains momentum
The November 1 changes on remuneration disclosure to the National Insurance Brokers Association (NIBA) code of practice were intended to draw a line under a debate that’s raged for more than a year.
But interpretations and opinions continue to flow thick and fast, with strongly held views on both sides and other issues emerging as we go.
A brief timeline sourced from the insuranceNEWS.com.au archives helps to crystalise the issue:
March 2022 – NIBA launches its long-delayed new code, to replace the 2014 version, following detailed consultations with stakeholders and members. Section 6.1 says remuneration including commissions must be disclosed to retail clients. The code must be implemented by November 2022.
April 2022 – NIBA announces a change to 6.1, replacing the reference to retail clients with “individual and small business clients”. The code, as published on the NIBA website, is updated.
July 2022 – NIBA announces that implementation of 6.1 will be delayed for an extra 12 months, to November 2023. It says feedback from members indicates more time is needed to adjust systems and processes to small business disclosure requirements.
November 2022 – The code is implemented, with the exception of 6.1.
July 2023 – NIBA announces that following further consultation with members, the wording of 6.1 will be revised back to focus on retail clients purchasing retail products, as defined in the Corporations Act.
October 2023 – The revised code is published on the NIBA website, removing the requirement to disclose remuneration to small business clients just days before the implementation of 6.1 on November 1.
As insuranceNEWS.com.au has reported, the reversal on 6.1 upset consumer groups and the Insurance Brokers Code Compliance Committee (IBCCC), with Chairman Oscar Shub saying he is “deeply concerned”. Quality of Advice Reviewer Michelle Levy and industry expert John Trowbridge also disagreed with the move.
On Thursday, insuranceNEWS.com.au published comments from Steadfast CEO Robert Kelly, who said the network has its own code that goes further, and that the previous version of the NIBA code “was the correct one”, from the consumer’s perspective.
Mr Kelly says that some brokers are against transparency because they do not want their clients to know how much they earn. He also says some NIBA members threatened to leave and set up a rival association if the reference to small businesses remained in the code.
The comments sparked a reaction from the other large listed Australian brokerages, AUB Group and PSC.
They say that while they do prefer the code as it now stands, this is not due to fear of disclosing commissions to small business clients, but because the practicalities made the previous version unworkable.
They also say that while discussions were held about the future of NIBA, this was in relation to a broader range of issues.
PSC MD Tony Robinson says the reference to small businesses in the previous version of the code “was an impractical idea with no real benefit to the end client”.
Current legislation defines a small business as one that employs fewer than 20 employees, or if it’s a manufacturing business, fewer than 100 employees.
Mr Robinson says the extra work in monitoring and adhering to the small business disclosure requirements would create costs that would ultimately be paid for by clients. He gives the example of needing to track customer employee numbers to respond to situations where a company moves from 101 employees to 99.
He says many PSC brokers disclose remuneration to small business clients already, and “if any of them are asked they always disclose”. He also points out that complaints about brokers are very rare, and that, “almost universally”, brokers are providing great service and outcomes for clients.
“Of course other people can have other opinions [about the code],” he told insuranceNEWS.com.au.
“But NIBA is there to ensure the industry has a long-term role to play by ensuring that clients get great outcomes via great advice, and by ensuring brokers are able to operate in a way that allows an economically viable profession.
“Where we landed on transparency was obviously a wrestle, largely as a result of all the practical issues. But where NIBA got to, with universal support, was that the client outcome is the principal focus, and the code is written to achieve that and to help drive that outcome.”
He says PSC would be open to other ways to ensure disclosure is required for unsophisticated small businesses, but that this would be more consistent if it was set out by government or regulatory bodies.
Mr Robinson says PSC did consider leaving NIBA but adds this was about more than just the code, and that its concerns have now been dealt with.
He says there were issues related to NIBA’s governance structure, and that a NIBA leadership committee, consisting of the MDs of large local and international firms, drove the agenda outside of the board, “compromising the ability of the board to be independent of that group’s agenda”.
Mr Robinson says the interests of Australian SME brokers were not being given “appropriate weight”.
“If there are different views and perspectives, and one party is dominating and others can’t be heard, then of course it is going to lead to a group of them trying to create a voice,” he said.
“We never got to the point of resigning from NIBA but we felt there were a whole lot of issues that were being pushed by people with different views.
“We maintain that view but decided it is better to push for change as part of the group than to leave the group.”
Mr Robinson says that the focus on section 6.1 of the code has been disproportionate, and “if there is an issue within the industry it is vertical integration”. By vertical integration, Mr Robinson means one company owning different parts of the insurance underwriting and distribution chain, which he says can create conflicts.
“If there is something that is going to create a structural problem, it’s not the disclosure issue, it’s the vertical integration,” he says.
AUB Group CEO and MD Mike Emmett says the revised version of the code is “much more appropriate and manageable”.
He says AUB agrees that “less sophisticated” clients should be given greater disclosure, but the definition of small business meant that brokers would have needed to track clients’ employee numbers and adjust systems and processes – with the cost (and no real benefit) passed on to clients.
“We don’t collect details about how many staff our clients employ. So the first thing is there is a whole lot of unhelpful data you have got to collect, for what we thought was a spurious purpose.
“Because the idea that a company with 90 employees should have a certain amount of disclosure and then a company with 120 employees should somehow require less disclosure seems farcical.
“We have hordes of clients that ask us for disclosure, and we give it.”
On the issue of potentially leaving NIBA, Mr Emmett says such conversations were had but they pre-dated the code debate.
He says there were concerns that Steadfast and AUB were providing the majority of NIBA’s funding, but that the international brokerages, which have a different agenda, had a “disproportionate” influence.
“In fairness NIBA has been reconstituted, the board has been restructured, PSC now does have board membership, and it's a vast improvement. I think that that whole debate was a very constructive one.”
Asked if just declaring all commissions would be a way forward, as it avoids the issue of defining small business clients, Mr Emmett disagrees, predicting it would result in “a race to the bottom”.
“Another broker, who may not be a very good broker, just asks for a copy of your policy document and says ‘I’ll do it for half that’.
“Then the industry ends up in a bit of a cycle towards the bottom, and you end up with what has happened in the financial advice industry, where all of the good brokers moved into other industries where they can maintain the income level.
“As a result an industry is weakened, and it is actually the retail clients who suffer the most because you can’t actually get good financial advice for a reasonable cost any more, because there is such a shortage of advisers.
“I do think that there are issues with some of that public transparency.”
Perhaps there’s an alternative way to define the sorts of small business clients that everyone seems to agree should get full disclosure? Maybe, he says, but there are more important issues and it’s “time to get on”.
Mr Emmett says he cannot recall a complaint about broker remuneration or disclosure, and that the industry should “fix problems that exist”.
“When there are complaints by small businesses about lack of disclosure or their broker won’t tell them stuff or they don’t understand it, then let’s respond and address that.
“Maybe there is a different version of 6.1 that achieves what [the previous version] is trying to achieve but in a more practical way. Put it on the to do list.
“But let’s just get on with it. Let’s embed the code. Let’s make sure brokers are adopting the code, that they are sticking to it, that the code compliance is working.”
In reference to IBCCC Chairman Mr Shub’s comments on the code reversal, he suggests the body sticks to its role in enforcing the code.
“The code compliance committee [should do] what their remit is, which is to ensure compliance with the code rather than commenting on the code.
“When does a code compliance committee become a body that speaks about the code that they are meant to be assessing the compliance against?”
NIBA CEO Phil Kewin told insuranceNEWS.com.au that "like any membership association, members are regularly raising different issues.
"Over the past 18 months NIBA has worked to address a number of these.
"For example, we updated the NIBA Constitution, restructured the Board composition, reviewed membership fee models and engaged proactively with all industry leaders.
"Often external input has been sought to ensure we deliver outcomes that are contemporary, and reflective of the current NIBA membership. This was demonstrated at the Extraordinary General Meeting last year in the unanimous decision to adopt the code in its current format.”
Many might agree with Mr Emmett that it’s time to move on from 6.1. But perhaps the reluctance to do so shows there are still unresolved issues around broker commissions and transparency – within the industry and without.
The next code review starts next year, and another chapter in this story will be written.