New Zealand insurance brokers are already “sharing the pain” of industry losses, and calls for lower commissions aren’t realistic, Insurance Brokers Association of New Zealand (IBANZ) CEO Gary Young says.

Reacting to comments by leading insurers at the IBANZ conference in Auckland that brokers should lower commission levels, Mr Young says this “isn’t the silver bullet insurers are looking for”.

QBE NZ CEO Ross Chapman told the conference the level of some commissions paid to New Zealand brokers can no longer be justified.

“At the end of the day the insurers are the ones carrying the risk and buying the reinsurance – and that is not getting cheaper,” he told a panel discussion moderated by insuranceNEWS.com.au Publisher Terry McMullan.

But Mr Young says brokers lost earnings when competition among insurers pushed rates down, “and they resisted calls for higher commissions then. Why would we want to cut commissions now rates are rising? It’s an over-simplification of the issue to concentrate on commission levels.”

Mr Chapman says insurers and reinsurers are trying to rebuild their balance sheets, and he wonders whether it’s reasonable to expect the broker distribution channel to “take such a large slice out of the pot”.

NZI EGM Karl Armstrong says commissions turn on the issue of affordability for the client.

“Everyone has to ask what value they are adding to the chain,” he said. “Is the value added just because the price goes up? My view of that is it is not.”

He says if brokers disagree with this view, they could charge a transparent fee instead of commission and explain to the client the value they add.

“The reality is we have to get to a situation where we have to make insurance affordable,” Mr Armstrong said. “And can we afford 25-27% on domestic insurance?”

Lumley NZ CEO John Lyon says disclosure is important in a professional market. “I think the industry needs to take a long hard look at that.”

Although brokers argue they are working much harder to secure cover, Mr Lyon says underwriters are also working hard “and losing a hell of a lot more money”.

“The pain needs to be shared,” he said.

Vero NZ CEO Gary Dransfield told the conference the industry faces a couple of hard years where it will struggle because profits and commissions will be lower.

“We will have a couple of years of ugly accumulated losses in our organisation which we are not used to,” he said. “I see a challenge of keeping good people while going through a couple of years of struggle.”