Insurers support moves to prevent “excessive” broker commissions, but are against calls for a new fee model, the Insurance Council of Australia (ICA) says in a submission released today.
Extending the ban on conflicted remuneration to brokers is one of 15 recommendations the Australian Competition and Consumer Commission (ACCC) wants Canberra to quickly take up to alleviate the premium affordability problem facing consumers in the north.
The competition watchdog issued the to-do list in its interim report in December as part of an ongoing pricing inquiry that will end next year.
But ICA does not believe axing commissions will remedy the problem, although it does support the planned Government-led review on whether it remains justified for the industry to be exempt from the conflicted remuneration ban.
“Given the unique nature of general insurance and the market structures within which it is sold, the Insurance Council does not support a ban on commission-based remuneration arrangements,” ICA says in its submission to the ACCC interim report.
“As an alternative to a ban on commission-based remuneration, the Insurance Council and many of its members are open to reforms that would ensure commissions are not excessive.
“This, together with greater transparency and disclosure by brokers, would mitigate any potential conflicts of interest. Further, inappropriate sales conduct is directly addressed by the new product design and distribution obligations reforms.”
The ACCC interim report says brokers taking commission rates of 15-20% are fairly common, and the figure could rise to 30% when incentive payments are included.
“There is little or no direct relationship between the size of the commission and the work undertaken,” the interim report says, adding the status quo “inevitably gives rise to conflicts of interest, which consumers may not be fully aware of.”
ICA sees it differently though.
“It is typically the case that the consumer knows whether they want general insurance or not,” the council says.
“Furthermore, general insurance products do not have an investment component; are usually subject to standard terms and conditions; are generally cancellable by the consumer; and are of limited duration, usually 12 months.”
ICA supports the ACCC proposal to apply unfair contract terms protections to insurance provided the move does not weaken the basis on which an insurer agrees to provide cover.
Council members have also agreed to provide premium comparisons and explanations of rate changes for home and contents and motor vehicle policies from next July, the ICA says – a move that is in line with the ACCC proposal calling on insurers to provide more details in a renewal notice.