Last week, the federal government released Michelle Levy’s final Quality of Advice Review (QAR) report with its 22 recommendations. Levy, Treasury’s independent reviewer, rejected calls from some consumer groups to ban broker commissions. Her report is part of a government effort to improve the accessibility and affordability of quality financial advice.
Insurance Business is consulting with industry stakeholders for opinions on Levy’s 250 plus page report.
Andrew Hall (pictured above), CEO of the Insurance Council of Australia (ICA), suggested that the report shows a change in the government’s position regarding the intermediated insurance sector.
“I think more broadly her report does signal a shift in thinking back towards the importance of brokered and advised channels and getting affordability and sustainability in that space for those sectors,” said Hall.
IB asked the ICA’s CEO what he thought of Levy’s rationale for keeping broker commissions. The independent reviewer said that, “despite their shortcomings,” commissions were necessary or consumers may not get the insurance or the advice that they need.
“I think what she’s [Michelle Levy] saying, quite rightly, is that where brokers add value to the sales process of a product like insurance, is that they can really work out the right product across a range of products to suit the risk problem that a company, a family or an individual may have,” said Hall.
However, he said that commissions are a matter for the National Insurance Brokers Association (NIBA) and that transparency is “critical,” particularly where “only a small cohort of insurers,” may be involved.
Hall said in other areas of financial services – like wealth management and life insurance – there has likely been an “an over correction against financial advice that’s made it harder to get it.”
He said, particularly in commercial lines insurance, where no two businesses are the same, advice is “critically important.”
“A broker can often provide that bespoke advice and tailoring of solutions to people’s outcomes,” he said.
Hall said there needs to be a balance.
“Brokers need to be able to earn a commission,” said Hall. “They also need to be transparent about that with their clients as much as they can and I think people need to understand who they’re actually working with and where they’re obtaining their insurance coverage.”
IB asked Hall for his view on QAR submissions from consumer groups, including CHOICE, who argued that consumers should receive their financial advice from other sources, not insurance brokers. The ICA’s CEO said “the world will continue to evolve here” and “ultimately, we’ve got to always keep the consumers’ interests at heart, they need to be the starting point for any financial advice.”
Last week, NIBA released its initial response to the QAR recommendations. The NIBA media release also listed some of Levy’s key recommendations.
“We can see there are some very positive observations and pragmatic recommendations in relation to insurance and insurance brokers,” said Philip Kewin, NIBA CEO.
Kewin said Levy acknowledged the important role of insurance in the community and the role of the broker in benefiting both the client and insurer.
“Importantly, commissions have been retained in order to ensure clients still have access to affordable advice from brokers,” he said.
Kewin said NIBA believes that Levy’s recommendation that the definition of personal advice be expanded, together with commission disclosure, “will give more clarity and certainty for clients and create a level playing field, irrespective of whether they access their advice via a broker, agent or directly from an insurer.”
NIBA also noted that the QAR “is the second review into the financial services industry which has found no evidence of widespread misconduct by insurance brokers.”
The first review by Commissioner Kenneth Hayne, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, completed in 2019, did find that, “incentive, bonus and commission schemes throughout the financial services industry have measured sales and profit, but not compliance with the law and proper standards.” (Page 2, Introduction, Final Report, vol. 1)
Numerous regulatory changes followed that have impacted the insurance industry, including brokers. In the wake of the Royal Commission, both NIBA and the ICA updated their Codes of Practice to promote greater transparency and accountability.
A full copy of Michell Levy’s QAR report is available here. The government is considering its response to her recommendations.
