Home / Local / Potential for add-on commissions to ‘jeopardise’ brokers’ independence
14 December 2020
The Insurance Brokers Code Compliance Committee has expressed concerns over the independence of brokers who sell add-on products to clients on behalf of insurers.
The Committee aired its worries after its report found brokers earn a commission of around 20% of gross written premium from each sale. 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.
While only 2.6% of code subscribers arrange add-ons for clients, the report found many were using sales practices that don’t always prioritise clients’ needs.
The report says most brokers handle insurance add-ons well, but there is room for improvement.
“The Committee has a concern that the prospect of earning commissions on these products has the potential to jeopardise brokers’ independence,” the Committee says 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.
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.
It 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 exclusions.
Click here for the report.