The government’s Quality of Advice Review is re-examining the issue of commissions across the financial services industry, including the commissions brokers receive from insurers.
“I think this is a really good debate and conversation,” said Matthew Bates (pictured above), managing director of the brokerage Bell Partners Insurance, winner for the Top Insurance Brokerages in Australia.
“I’m actually for removing commissions on certain types of policies - but not all at once - because I certainly think anything to make our industry more professional is a really good thing,” said Sydney-based Bates. His firm’s income is split almost evenly between commissions and fees.
Insurance brokers are currently exempt from a ban on conflicted remuneration. The ban came out of the Future of Financial Advice (FOFA) reforms a decade ago. Conflicted remuneration is, for example, when a financial benefit influences which financial product is recommended to a client.
Some industry stakeholders would include insurance broker commissions under this definition.
Read more: NIBA’s fight for broker commissions
NIBA’s submission to the government’s Quality of Advice Review, said CEO Phil Kewin, also argued that commissions allow brokers to give affordable, quality advice to their customers. He said the recently revamped Insurance Brokers Code of Practice is evidence that the industry can self-regulate with new standards that are “above the law.”
“The revised Code of Practice shows that, as a profession, we can self-regulate and therefore the government shouldn’t find it necessary to make radical reforms like removing commissions,” he said.
Bates doesn’t necessarily disagree but said he is “fully supportive of anything that seeks to lift the quality of advice and professional standards of our industry.”
“If it’s left up to ourselves as an industry, how are we going to continue to lift our professionalism down the track if we see ourselves as peers of the accounting and legal professions, which charge fees only?” he said.
He’d like the Quality of Advice Review to stimulate more industry debate around the issue of phasing out commissions, whether that ends up being only on certain policies, or all policies. The review, said Bates, should also come up with recommendations and a timeline.
“I think it needs to be a staged approach. You don’t want to get to, for example, January 01, 2023, and suddenly there are no commissions on a number of policy classes,” he said.
If some commissions do go, Bates wants to make sure clients get the full benefit.
“If commissions are removed, whether it be from domestic or business policies, I think we, as an industry, need to have insurers guaranteeing that they will reduce all their premiums by that full amount of commissions that we would have normally got,” he said.
Bates expressed concern that insurers could use this as an opportunity to engage in a “premium grab” and justify it by arguing that they’ve endured years of rising claims costs and lower investment.
However, Bates hastened to add that he’s also not convinced that removing all commissions overnight is the right way to protect the customer. He was also concerned about the impacts on small broking businesses, like family run brokerages that have never charged fees.
“A lot of brokerages could shut up shop overnight if commissions are wiped out with no phase out period – that’s a concern for my peers in the industry,” he said.
Bates described the commission issue as a double-edge sword.
“So I think it’s a great way to protect the customer but I’m not convinced about removing all commissions across the whole industry from day one,” he said.
The commission system, he said, does allow the holders of domestic polices and small business owners to get advice they generally can’t afford to pay for. These customers, he said, are often the “least equipped” to make insurance decisions.
The fee system, he said, works well with larger corporate clients.
He said he’s never come across a broker that chases the highest commission at the expense of giving good advice to clients. However, he suggested that could have been an issue with some big broker cluster groups who have used performance-based commissions based on volume of business.
“I’ve never had exposure to those,” he added.
Bates was adamant that brokers should be providing the best possible advice.
“I certainly couldn’t sleep and know that brokers were choosing one insurer over another because of higher commissions. That’s not right,” he said.
“Broking is a relationship game, and we build long term trusted relationships with our clients. If you don’t do that and instead make decisions around the highest commission you’re not acting in their best interest,” he added.
“So that argument of having commissions removed to increase that professional standard is why I’m more in the ‘for’ camp [favouring no commission] than the ‘against’,” said Bates.
