The long and often heated debate around broker commissions and transparency is a saga that many want to see concluded. But a tweak to the revised brokers’ code of practice guarantees the debate will continue. 

After the Hayne Royal Commission hearings in 2018, pressure was building on the commissions model, with a series of influential reports calling for an end to so-called “conflicted remuneration” in general insurance. 

In among all this, the National Insurance Brokers Association (NIBA) was reviewing its code of practice and trying to stay one step ahead of the game. 

Enter section 6.1 of the new 2022 code, which currently says: “If a client is an individual or a small business and we are acting on their behalf, we will provide them with information about any remuneration (including commissions) or other benefits we will or expect to receive as a result of providing covered services.” 

But now the regulatory clouds finally appear to have cleared, with the Quality of Advice Review recommending commissions remain for general insurance brokers, and the Government endorsing that approach. 

Lawyer Michelle Levy, who was commissioned by the Federal Treasury to conduct the review, took the view that commission percentages should be disclosed and client consent sought. Crucially, however, her recommendations only apply to retail customers, and not to SME customers who make up the vast majority of brokers’ business.  

Not long after the Government’s response was published, NIBA announced a change in the wording of section 6.1. The tweak to the wording seems designed to meet pushback from some NIBA members. While it may meet the association’s internal demands, NIBA should brace for the stinging criticism from external interest groups. 

As insuranceNEWS.com.au has previously reported, some NIBA members objected to the inclusion of small businesses in the clause, and in July last year NIBA announced the implementation of 6.1 would be delayed by 12 months to November this year. 

Following consultation with members, this month NIBA announced the small business element will be removed from that section of the code and the requirement to disclose commissions will be restricted to retail clients. 

NIBA said consultation with members showed that including small businesses made things more complicated and according to CEO Phil Kewin added “limited value”. It also said the Quality of Advice Review had focused on retail clients and therefore so should that section of the code. 

The best way to interpret this back and forth is that while the pressure was on commissions, NIBA felt the need to go beyond the law and get ahead of the game on disclosure. But some members reacted badly to 6.1 as it stood, saying there was no need to extend it to small business and pointing out practical concerns around systems and processes. 

With the future of broker commissions apparently secured, and with no particular scrutiny on small business clients, NIBA decided to change the focus of the code’s disclosure requirement to retail customers only. 

No one should be surprised at the reaction from consumer groups and the reviewer herself.  

Financial Rights Legal Centre CEO Karen Cox told insuranceNEWS.com.au: “We are disappointed that insurance brokers have taken this step to wind back commitments already made under the Code of Practice relating to disclosure of commissions.  

“NIBA spent years reviewing their code, consulting with consumer groups and agreeing on these changes, only to take a step backwards with little consultation at the earliest opportunity. This is far from best practice code management.” 

In response, NIBA points out that the original version of the new code that was consulted on with consumer groups did not include the small business aspect, which was introduced later (and then removed). It says that small businesses do qualify as retail clients if purchasing retail products, and also adds that many brokers do disclose commissions to small business clients of their own volition.

Ms Levy told insuranceNEWS.com.au that while her review recommendations do focus purely on retail customers, this simply reflects the review’s terms of reference. She says her views on disclosure and consent around commissions also extend to small business. 

She says she does not understand why brokers wouldn’t disclose commissions to small business clients, and that it should be the default position. 

“The fact that my recommendations are limited to retail clients is because that was the scope of the terms of reference – not because I thought a lower standard should apply to wholesale clients,” she says. 

“The law may be silent on wholesale clients because there may be a view that they can look after themselves. But surely disclosure of commissions helps build trust and confidence. 

“My reasoning doesn’t just apply to retail clients.” 

Nor is the criticism confined to Ms Levy and the consumer groups. Some brokers have also expressed surprise at the move. 

John Usher, Account Manager at Teamcare Insurance Brokers, says he doesn’t see why brokers “are scared of declaring their commissions on every account. That was the original proposal until people started pushing back.” 

Writing on insuranceNEWS.com.au’s LinkedIn account, he says he has seen “all manner of arguments against transparency, but it all comes down to obfuscation”. 

There is an acceptance that brokers for corporate sector companies mainly impose fees for service, but there is concern that smaller business-owners are unlikely to be as well informed as the big business players. 

“Every customer, retail or wholesale, should have the right to know how much they are paying their broker,” Queensland-based brokerage Clear Insurance MD Lisa Carter told insuranceNEWS.com.au. 

“Like accountants and lawyers, insurance brokers are offering professional advice and that is how we should be approaching our interactions. Why shouldn’t the client know how much they are paying for that advice?” 

While Clear has operated on a fee-for-service model since 2021, Ms Carter says commissions “are not necessarily a bad thing”. 

“But I believe we should be open and transparent, and the client has a right to know how the broker is being remunerated. Brokers need to get better at explaining how much value we bring.” 

The Quality of Advice Review may well draw a line under the commissions debate for the foreseeable future. But it will remain a sore point with consumer groups, and probably with the regulator. NIBA’s move also raises reputational damage issues if the groups’ opposition to the change receives wider attention. Ms Levy’s concerns are also likely to be shared by the regulator.  

We shouldn’t be surprised if another review of the commissions issue comes around again in a few years. At which point, might the broking sector again feel a need to get ahead of the game?