The competition regulator has confirmed its stance against broker commissions in a submission to the profession’s code of practice review.

The Australian Competition and Consumer Commission highlights findings from its 2020 Northern Australia Insurance Inquiry, which recommended extending a ban on conflicted remuneration to brokers. 

Most conflicted remuneration – and particularly commissions – is set with reference to underlying premium amounts, and there is a disincentive for brokers to seek more affordable cover for clients or consider alternatives that pay lower or no commissions, it says. Even if conflicted remuneration is fully disclosed and understood by consumers, it is still conflicted.

“We acknowledge concerns that some consumers may choose not to pay an upfront fee equivalent to the commissions and other payments built into their premiums,” ACCC chair Gina Cass-Gottlieb says in the submission.

“However, we do not consider that any challenges involved in transitioning away from business models reliant on conflicted remuneration justify maintaining an exemption which allows it.”

In 2023, the federal government accepted a Quality of Advice Review recommendation that general insurance remain exempt from a conflicted remuneration ban but that brokers should have to obtain consent to receive commissions where personal advice is provided to retail clients.

That requirement takes effect on July 10.

NSW Fair Trading, which has been reviewing strata sector practices, says in its submission to the review that the broking code of practice can play an important role in improving commission practices.

Commissioner Natasha Mann urges consideration of stronger disclosure obligations to ensure brokers provide remuneration information to owners’ corporations, greater remuneration and ownership structure transparency, and compliance monitoring that is visible and can deal with breaches.

“NSW Fair Trading also notes the recommendation of the Australian Competition and Consumer Commission Northern Australia Insurance Inquiry, which calls for the ban on conflicted remuneration to be extended to insurance brokers,” she says.

Consultant John Trowbridge’s submission draws from his previous reports for the insurance sector, including on strata.

He has recommended commissions continue, with brokers disclosing on customer quotes and invoices all commissions and payments they will receive.

He also suggests the National Insurance Brokers Association provide guidelines with examples or case studies as a code supplement to increase understanding of conflicts, fiduciary duties and the obligation to act in the client’s best interest.

The WA Small Business Development Corporation supports expanding the small business definition to ensure the obligation to disclose remuneration and conflicts applies further beyond retail clients.

“Small businesses often lack the resources and expertise to thoroughly understand insurance arrangements and associated remuneration structures, much like the experience of individual consumers,” it says.

“Extending disclosure obligations to all classes of business insurance would allow small business clients to gain a clearer understanding of the financial incentives influencing the services suggested/provided to them.”

The retail focus excludes many small businesses that require products such as professional indemnity, public liability, business continuity, workers’ compensation and cyber cover, the corporation says.

The submission supports adopting the small business definition in Australian Financial Complaints Authority rules.

Submissions to the review, conducted by Phil Khoury, close tomorrow.

Public submissions are available here.

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