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Berkley Insurance Australia

Brokers fend off criticism of commissions

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The National Insurance Brokers Association (NIBA) has renewed its defence of the commission model, pushing back claims that it is a form of “conflicted remuneration” that may lead to adverse outcomes for consumers.

NIBA says it disagrees that “commissions are inherently conflicted” in a response to the Australian Small Business and Family Enterprise Ombudsman’s (ASBFEO) insurance inquiry report released last December.

The report made 15 recommendations, including a ban on conflicted remuneration, describing it as a matter that “needs to be urgently addressed”.

“Insurance brokers have an obligation to act in the best interest of their clients at all times,” NIBA said. “This obligation is more than aspirational, it is the legal foundation on which Australian insurance law is built.”

The peak body says it is “disappointed that ASBFEO has recommended a ban of so-called conflicted remuneration”.

“NIBA strongly rejects the proposition that commissions are inherently conflicted,” it said.

“Despite findings by the [Hayne] royal commission of commission payments leading to poor consumer outcomes in other areas of financial services, no such evidence was found in the intermediated general insurance industry.

“In fact, the royal commission found no evidence of misconduct by general insurance brokers despite brokers being well within the commission’s terms of reference.”

NIBA also referred to dispute statistics to defend the commission model, saying complaints against brokers made up less than 8% of small business insurance cases lodged with the Australian Financial Complaints Authority (AFCA) in the last financial year.

“Further evidence of brokers’ commitment to their clients’ best interest can be seen in the extremely low number of AFCA complaints against insurance brokers,” NIBA said.

NIBA also expressed disappointment that the Ombudsman did not call for an end to insurance-based taxes.

It backs the recommendation that these taxes should be clearly identified but says it fails to see how the suggestion will result in better outcomes for Australian businesses.

“NIBA is disappointed that the report fell at the last hurdle in failing to recommend the abolition of insurance-based taxes and levies, whose impact had been so well documented in the report itself and in various submissions provided to the inquiry,” it said.

NIBA says overall the report makes many recommendations that will bring considerable benefits to the affordability and availability of insurance for small businesses and consumers.

“Many findings of the report match the experiences of our members, both as intermediaries and many as small businesses themselves,” NIBA said.