Consumer Groups Warn of Potential Abuse in Soft Insurance Market
Consumer advocacy groups are sounding the alarm about potential remuneration practices by insurance brokers that could disadvantage clients unless regulators intervene. The Australian Consumers Insurance Lobby Inc (ACIL) has urged regulatory bodies, including the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC), to closely monitor how brokers adjust their compensation structures during the current market downturn.
Concerns Over Lack of Transparency
ACIL expressed concern that some brokers might increase commissions while premiums fall, without adequately disclosing these changes to their clients. As holders of Australian Financial Services Licenses (AFSL), brokers are required to operate efficiently, honestly, and fairly. The organization warned that adjustments to commission or fee arrangements lacking transparency could breach these standards.
Tyrone Shandiman, ACIL’s chair, cited past insurance cycles where brokers negotiated significant premium reductions but failed to pass the savings on to clients. Instead, they increased their commissions on top of existing fee-for-service models, leaving clients worse off without proper disclosure. This practice has even affected sophisticated clients, such as large apartment buildings, where disclosure was often presumed unnecessary.
Recommendations for Greater Transparency
In a recent submission to the review of the National Insurance Brokers Association (NIBA) Code of Practice, ACIL proposed several reforms aimed at enhancing transparency. These include mandatory disclosure of changes in broker remuneration year-over-year, unified disclosure rules for both retail and wholesale clients, and evidence-based justification for fees exceeding industry norms.
“At a minimum, brokers must be upfront with clients when changing remuneration structures, especially where the benefit flows to the broker at the client’s expense,” Shandiman emphasized. “That means ensuring clients are properly informed and their consent is genuinely obtained.”
Industry Debate Over Commission Reforms
The push for greater transparency comes amid a broader debate in the insurance industry. A proposed reform in New South Wales to end commission-based compensation in strata insurance has sparked division. Consumer advocates argue that eliminating commissions is crucial to removing conflicts of interest and improving pricing clarity in strata insurance.
Karen Stiles, policy director at the Owners Corporation Network, noted that previous investigations have uncovered significant misconduct in the strata insurance sector, costing lot owners in terms of trust, transparency, and inflated premiums. Shandiman added that the issues are deeply rooted and result from systemic, unethical behavior that has gone unchecked for too long.
The consumer groups’ call for action underscores the need for greater oversight and transparency in the insurance broking industry, particularly during periods of market fluctuation.
