The Australian Competition and Consumer Commission (ACCC) has concluded its three-year inquiry into insurance affordability in northern Australia by calling for broker commissions to be replaced by a fee-based system.

The ACCC’s final report was quietly published to its website this week, with no press release or comment to be provided until next month.

The regulator says it examined the markets for home, contents and strata insurance in northern Australia “in a level of detail that had not been done by any review before us”.

“We have collected and analysed an extensive volume of documents and data from insurers, and consulted widely, including with industry, local residents, communities and consumer representative groups across northern Australia,” it says.

“Our analysis shows that home, contents and strata premiums are, on average, considerably higher in northern Australia than the rest of Australia and have increased more over the last decade. Rates of non-insurance are increasing and cost is the main reason.”

The almost 600-page final report contains 38 recommendations to improve the situation, with many following those set out in previous interim reports.

Recommendations include a review of standard cover, a national home insurance comparison website, the abolition of stamp duty on insurance, and the insurance industry to work with governments to identify specific public mitigation works.

Insurers should also estimate a sum insured for customers, the report says, and disclose the premium impacts of optional inclusions such as flood cover.

The ACCC reaffirms its reluctance for a cyclone reinsurance pool, despite increasing calls for such a measure in recent months. It still prefers direct subsidies “if governments want to intervene”.

The report is very clear on broker commissions, calling for an extension to the ban on conflicted remuneration, to include insurance brokers.

The ACCC claims there is limited incentive for brokers to source cheaper cover for clients because this will reduce their own income. It also suggests brokers might criticise insurers that reduce premiums too sharply, because of the knock-on effect on commissions.

It highlights information from “one insurer” that decided to reduce the base commission rates paid to insurance brokers on residential products to 15%.

“It found that the change in commission, with no other changes made to the policy wording to effect its suitability, led to a significant reduction in the number of policies sold through insurance brokers and profit,” the report says.

“We consider it may be that, faced with a lower commission payment, brokers elected to stop recommending the insurer’s product in part or in full, or to only place risks with them in high hazard areas where there were few other competitive options.”

The ACCC concludes that brokers accepting commissions from insurers creates a conflict of interest.

“We consider that providing a clear, fee-for-service model to consumers is preferred to the remuneration arrangements described above, as they avoid inherent conflicts of interest that exist,” it says.

Click here to read the full report.

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