Government hearing questions broker commissions and strata fees
Government hearing questions broker commissions and strata fees | Insurance Business Australia
Insurance News
Government hearing questions broker commissions and strata fees
“It sounds like a bit of a rort to me, to be frank”
Insurance News
By
Daniel Wood
On Friday, the government’s inquiry into the Impact of Climate Risk on Insurance Premiums and Availability held a public hearing in Sydney. The Select Committee’s terms of reference is wide enough for it to focus attention on a timely and controversial issue: broker commissions and strata fees.
The implications for brokers could be significant, especially for those dependent on commissions for their livelihood.
“It sounds like a bit of a rort to me to be frank,” said the Committee’s deputy chair, Labor Party Senator Tony Sheldon (pictured above). In the context of rapidly rising premiums, he was referring to the relatively widespread industry standard of a 20% broker commission on commercial insurance premiums.
ACCC reaffirms its case against insurer commissions
Before that, the Australian Competition and Consumer Commission’s (ACCC’s) Michael Eady was asked by the Committee to elaborate on why his agency is calling for a ban on strata insurance commissions?
In the recent ABC Four Corners strata exposé, the ACCC’s chair Gina Cass-Gottlieb was interviewed and advocated for a ban – a position that would alarm many brokers.
Eady, the regulator’s general manager of insurance monitoring and financial services, provided the Committee with some of the reasoning behind that view
He said his agency’s Northern Australia Insurance Inquiry in 2020 looked at the role of commissions and intermediaries and Cass-Gottlieb’s comments “grew from those findings.”
However, in line with this 600-page final report, Eady said the ACCC is against insurer commissions for brokers in any insurance line, not just in strata.
“We consider that commissions create an inevitable conflict of interest, whether they be commissions paid to a broker from an insurer, or whether they be commissions paid to a strata manager from a broker or from an insurer,” he told Friday’s hearing. “Depending on the exact nature of the relationship, there’s a conflict of interest there.”
Eady said this situation incentivises brokers and strata managers in a way that conflicts with their obligations to the body corporate of apartment owners that they represent.
He said the ACCC also thinks this pushes up premiums.
“We think a way to manage that conflict of interest would be for those commissions to be banned,” said Eady. “That was one of the recommendations which we put in our report.”
John Trowbridge presents the facts
John Trowbridge, the industry expert who completed an independent Steadfast-funded report looking at strata transparency issues, also appeared at the hearing.
He was somewhat hesitant answering questions. However, he did say to Sheldon, that the average commission on insurance premiums in the strata sector is 20% but sometimes as high as 40%. Trowbridge said a 10% commission would be more suitable.
IAG focuses on costings
Sheldon asked the leadership of Insurance Australia Group (IAG) to what extent these oversized strata commissions could be impacting the premium prices of every insurance customer?
George Karagiannakis, IAG’s executive manager of government and industry affairs, said “typically” the insurance commission his firm would pay a strata broker would be 20%.
“The main point I’ll make,” said Christa Marjoribanks, IAG’s executive general manager of product, pricing and governance for Intermediated Insurance Australia, “when we’re pricing for strata, or for any other business, we price for the cost of claims and all of the elements I talked about before.”
Marjoribanks said IAG would be aware of the commission a broker might charge.
“But anything beyond that is not really part of our area that we get visibility over,” she said
However, both Marjoribanks and her IAG colleague at the hearing – George Karagiannakis, IAG’s executive manager of government and industry affairs – said transparency in the strata sector is a key issue.
Allianz says brokers play important role
Executives from Allianz Australia also appeared.
James Fitzpatrick, the firm’s chief data officer said his firm agrees with improving transparency across the “entire value chain” in the strata sector.
However, he said the broker plays an important role advising clients and is acting on their behalf, not the insurer.
“We have very limited ability to control or to influence the way that brokers, as a customer’s representative, operate,” he said.
Sheldon asked why the strata insurance commission is 20%?
“It applies to commercial business more generally, not just strata,” said Nicholas Scofield, Allianz Australia’s chief corporate affairs officer.
Sheldon said this raises serious concerns.
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