General insurance broking commissions should remain exempt from the ban on conflicted remuneration, the Quality of Advice Review says in its final report, setting out a detailed explanation for its position. 

Reviewer Michelle Levy says a “small number” of stakeholders who argued for the exemption to be removed based those calls on a belief that “commissions are morally repugnant”. 

Yet there are many areas in which commissions are a permitted and common form of remuneration, where they are not only tolerated but preferred. Commissions paid to mortgage brokers are a relevant example, she says. 

Ms Levy says she also worries about the effect commissions and other forms of conflicted remuneration have on the quality of financial product advice. 

“However, my worry is not a sufficient reason to recommend that all of the remaining exceptions be removed. It is necessary to consider them on a case-by-case basis,” she says in the final report released yesterday by the Federal Government. 

“I have done so, and with some reservations, I have concluded that there are better reasons than not to retain insurance commissions and a number of the other exceptions.” 

In recommending that the exemption should stay, the final report says brokers and other general insurance intermediaries play an important role in the distribution of general insurance products by arranging for the placement and purchase of insurance. 

“Brokers may have specialist product expertise, they may work in regional and remote areas where insurers are unlikely to have branches (if they have them at all), they are often willing to meet their clients in person when insurers cannot,” the report says. 

“Intermediaries also increase choice and competition in the market.” 

The report says in a perfect world, brokers would charge a fee for their advice and would not be paid a product commission. 

“And in some cases they do. This is because commissions do create a conflict – they provide an incentive for the broker to sell a more expensive insurance product or more insurance than might be required by the consumer. 

“However, I have not been able to find any real evidence of widespread misconduct and I am concerned that consumers who rely on brokers may not be willing or able to pay a fee for their advice.” 

The report recommends that the exemption to conflicted remuneration stays as is, but with the condition that a person who provides personal advice to a retail client in relation to a general insurance product must explain to their client that they will be paid a commission. 

If the client decides to buy the recommended insurance product they must ask for the client’s consent to be paid the commission, which must be in writing. 

If the client does not consent then the adviser can agree to provide the advice for a fee or they can decline to give the advice. 

The National Insurance Brokers Association (NIBA) has responded favourably to the report. 

“We can see there are some very positive observations and pragmatic recommendations in relation to insurance and insurance brokers,” NIBA CEO Phil Kewin said. 

“The reviewer Michelle Levy acknowledges the important role of insurance in the community and the role of the broker in benefiting both the client and insurer. Importantly, commissions have been retained in order to ensure clients still have access to affordable advice from brokers.” 

The Government says it will consult widely on the report’s recommendations before providing its response. 

Click here for more on the report's recommendations.

Click here for the report.