General Insurance Consumer Protection

Consumer Insurance

I have been following the Quality of Advice Review process led by Michelle Levy with interest as I founded an independent risk and insurance consulting business that has client advocacy at its core.

The Quality of Advice Review Final Report was released on 8th February 2023. Broadly, the report recommends “that the conflicted remuneration provisions in the Corporations Act …. remain as they are”. The report has 1 consumer protection condition, which is very good. This condition stipulates 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 … and they must ask for the client’s consent”. 

What the report fails to show is the very small percentage of conflicted remuneration that is within the scope of these new consumer protections. These consumer protections only apply to retail clients, which we estimate is approximately 10% of the premium paid through brokers.  In other words, 90% of the premium is paid by non-retail clients and will not receive the benefit of these consumer protections.  RAS believes these consumer protections should apply across the entire general insurance industry.

APRA and Steadfast have published data indicating general insurance premium that flows through insurance brokers to insurers in Australia was $31B in CY22. Steadfast disclose in their most recent annual report that their earnings from retail clients was 14% of revenue. The big internationals, like Aon and Marsh, don’t disclose the amount they earn from retail clients but after consulting with the actuarial firms we use, we estimate that brokers in Australia earn between 7% and 14% of their revenue from retail clients.  In other words, a minority of clients will benefit from consumer protections whilst the vast majority will not.

There is a broad assumption that the remaining 86% to 93% of general insurance premium paid to brokers in a year, so between $27B and $29B, is paid by sophisticated businesses that are able to protect themselves from conflicted remuneration. After operating for 16 years and with over 1,000 independent engagements across industry and government, I can attest this perception is incorrect.  I employ many of the most experienced risk and insurance professionals in the region, and we advocate every day for transparent remuneration agreements between brokers and clients. 

What this does mean is that NIBA and the general insurance brokers operating in Australia are celebrating. The very pro insurance industry “Insurance News” headline said Michelle Levy’s report “backs commissions”. What this also means is the only consumer protection for about 90% of consumers of general insurance products in Australia is the creation of robust competition between brokers and carefully worded broker service agreements which require transparency of all broker remuneration. A system that allows an insurance broker to be paid more when an insurance product costs more is completely broken.

Author: Tony Cope

May 2023

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