The Australian Securities and Investments Commission (ASIC) has called for a ban on commissions across general insurance – a move that brokers say would “decimate” the broking industry.
The regulator’s submission to the Hayne royal commission policy questions document has caused widespread surprise, with many seeing it as a knee-jerk reaction to its soft-touch oversight of the banks and financial services companies.
It wants the ban on conflicted remuneration imposed on the financial services sector through the Future of Financial Advice (FOFA) reforms in 2012 to be extended to general insurance.
However, it focuses on minor insurance products to support its case, saying “the negotiation, payment and acceptance of conflicted remuneration has contributed to poor consumer outcomes, such as sales of products with little or no value to consumers, or which do not meet consumer needs”.
“ASIC considers that a ban on conflicted remuneration could encourage insurers to achieve sales through better engagement with consumers, leading to the development of improved sales methods as they would not be able to rely on the payment of commissions to intermediaries.
“In practice this could mean products being designed and promoted on the basis of cover and price that better meets the needs of consumers.”
The broking industry’s reaction to the submission raises questions as to whether ASIC has considered the impact a blanket commission ban would have on brokers – and their clients.
National Insurance Brokers Association (NIBA) CEO Dallas Booth told insuranceNEWS.com.au he believes ASIC’s view is driven by issues with add-on insurance sold through motor dealers, and the regulator has not properly considered the impact on brokers.
“It would decimate the broking industry,” he said. “To make a change like this there would have to be clear evidence of a problem [in broking]. There is no evidence.
“Analysis would have to be done to prove that the proposed change will be of benefit, not detriment, to the community. Nobody has done that analysis.”
Mr Booth says without commissions, brokers would need to charge fees for their services. Initially at least, clients would be reluctant to pay such a fee for advice they had previously received free of charge.
As previously reported by insuranceNEWS.com.au, the Insurance Council of Australia is also opposed to banning commissions on general insurance products.
One broker who contacted insuranceNEWS.com.au today questioned if the regulator had even considered – or understood – the impact on clients. “What it would mainly affect is the quality and availability of advice that’s provided by brokers to commercial clients.
“Brokers’ expertise in everything from risk advice to policy recommendations to claims negotiation would depend on the client’s willingness to pay a suitable fee. That won’t make commercial insurance any cheaper.
“The decision to not include general insurance intermediaries in the FOFA reforms was made on the very clear belief that brokers are an effective and efficient part of the insurance process.
“Now [ASIC has] been kicked over their failing on some very small areas of insurance that have nothing to do with brokers, they want to fix something that isn’t broken.”