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Northern Australia inquiry: ACCC calls for commission ban

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The Australian Competition and Consumer Commission's (ACCC) Northern Australia Insurance Inquiry has recommended banning broker commissions, abolishing stamp duties on policies and looking again at a comparison website as part of measures to tackle affordability issues.

The inquiry’s interim report, released this morning, says insurance premiums are not only “considerably higher” in northern Australia, they shot up 130% in real terms between 2008 and 2018 compared to an average 50% in the rest of the country.

“The anxiety caused by often unaffordable insurance premiums, and the inability of some people to even insure their homes is causing real distress for people living in northern WA, northern Queensland and the NT, and has the potential to limit economic development in the region,” Deputy Chairman Delia Rickard says.

“In this report, we have proposed a range of measures that could start to bring improvements to insurance markets, not only in northern regions, but also nationally if adopted more broadly.”

The report makes 15 recommendations that it says should be immediately adopted and a further 13 “draft recommendations” for further examination.

The initial proposals include removing stamp duties from home, contents and strata policies, and if that can’t be done stamp duty should be based on the sum insured. Some of the revenue collected should be used on improving affordability and funding mitigation work.

The Insurance Council of Australia today backed the recommendation to remove stamp duties. It says the industry is already working on other areas, such as improving effective disclosure.

“Scrapping these stamp duties would slice many hundreds of dollars off the final price customers in northern Australia pay for their insurance,” CEO Rob Whelan said.

The report also finds “significant” conflicts of interest in the market, with most insurance brokers receiving payments from insurers. It says commission rates of 15-20% of base premiums paid are common.

“As is already the case for other financial products, insurance brokers should be prohibited from receiving commissions and other benefits where these create a conflict with a broker’s obligation to act in the best interest of their clients,” the report says.

Other recommendations for prompt action include having insurers report regularly to the Australian Securities and Investments Commission on the brands they underwrite, and in which postcodes new business has been written.

It makes recommendations on standardised definitions and cover, and says unfair contract term protections should apply to insurance. There should also be work on better understanding information that falls within general advice.

The draft recommendations for further feedback include a call for the Federal Government to consider developing a national home insurance comparison website.

National Insurance Brokers Association (NIBA) CEO Dallas Booth says he is not aware of any issues where remuneration structures have produced poor client outcomes.

“The other comment about northern Australia is that the more the premiums went up, the more brokers negotiated different remuneration structures with their clients,” he told  “We must not assume that the standard commissions remained in place as premiums went up.”

Mr Booth is also critical of the proposal to re-examine a comparison website after ASIC had already looked at the measure.

“That does not help, because all the policies are different. You cannot compare apples with oranges,” he said.

The report finds the majority of insurers have operated at a loss in northern Australia during the past decade, while those that have been profitable have nevertheless experienced lower returns than in the rest of the country.

“We have observed an unusual competitive dynamic with insurers in northern Australia not necessarily motivated to compete on price for market share. Instead we have seen them increasing prices to manage their exposure in a region they perceived to be risky or volatile.

“This is exacerbating affordability concerns,” the ACCC says.

Submissions in response to the draft recommendations are due by April 12 next year.  The ACCC will complete a second interim report by November next year and a final report by November 30 2020.

A full copy of the first interim report is available here.