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Report flags concern over broker add-on sales tactics

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An independent report released today has highlighted concerns that some brokers who sell add-on insurance products are employing sales practices that don’t always prioritise their clients’ needs, potentially harming the broking industry’s reputation.

While the Insurance Brokers Code Compliance Committee is “pleased” that only 2.6% of code members offer these products and that most of them handle the add-ons well, it says there is room for improvement.

The report was released a day after the Bill covering add-on sales reform as proposed by the Hayne royal commission was passed in Parliament.

It found almost all of the code subscribers earn a commission on each sale of generally around 20% of gross written premium. Only a small number receive a fixed fee instead of a commission. These fixed fees vary depending on factors such as the product being sold or the length of the insurance coverage.

“The Committee has a concern that the prospect of earning commissions on these products has the potential to jeopardise brokers’ independence,” the Committee said in the report.

“This is a very important issue for insurance brokers because the practice of selling and the products themselves have been the subject of serious criticism for some time.

“The professional reputation of the entire industry could be put at risk if the few brokers selling these add-on products do not take great care to ensure staff are trained in ethical sales practices and understand the risk of harm these products might bring for the wrong customers.”

The Committee says it decided to launch an own motion inquiry to find out whether and how code subscribers sell add-ons and if they made an effort to ensure these products are useful, reliable and of value to their clients.

Out of the 12 code members that offered add-ons in the 2018/19 financial year, seven of them are large brokerages with more than 100 full-time staff.

They offer a range of add-ons such as cyber security for bookkeepers who have professional indemnity policies. They also arrange guarantee asset protection policies and consumer credit insurance. Other add-on products are sold alongside some form of motor vehicle insurance, with others tagged on to property insurance.

The Committee says information provided by the 12 code members indicates there is an over-reliance on scripted conversations and supplementary documentation such as product disclosure statements.

“Brokers and authorised representatives may not adequately consider the suitability and reliability of the product being sold or its value to the client during the sales process,” the Committee said. “Clients are not always being made aware that purchasing the add-on general insurance product is optional.”

The Committee urges code members that sell add-ons to take steps to improve the way the products are sold. These include making sure a product’s purpose is clearly explained to clients, evaluate a client’s needs, risk profile and eligibility as well as explain the costs plus relevant exlusions.

Code members should also introduce a deferred sales model for selling add-on general insurance products that reflects legislation proposed by the Federal Government.

The code does not specifically address add-on products, but they are covered by obligations set out in several of its service standards concerning scope of services, buying insurance and training.

The Consumer Action Law Centre says the report confirms add-on insurance is a problem area.

“Pressure selling has no place in insurance,” Senior Policy Officer Cat Newton told today. “The add-on sales process motivated by commissions puts the sale before the customer.”

Click here for the report.