The National Insurance Brokers Association (NIBA) has responded to the Australian Small Business and Family Enterprise Ombudsman’s report into small business insurance issues.
The report identified “widespread market failure in regards to the availability and affordability of essential small business insurance products.” While NIBA welcomes the final report and the renewed focus on small business insurance issues it rebuked a number of recommendations, most importantly the recommendation that the ban on commissions be extended to general insurance brokers.
The NIBA submission strongly rejected the proposition that commissions are inherently conflicted, “Insurance brokers have an obligation to act in the best interest of their clients at all times. This obligation is more than aspirational, it is the legal foundation on which Australian insurance law is built. While the Royal Commission into Misconduct in Banking and Financial Services found evidence of commission payments leading to poor consumer outcomes in other areas of financial services, no such evidence was found in the intermediated general insurance industry. In fact, the Royal Commission found no evidence of misconduct by general insurance brokers despite brokers being well within the commission’s terms of reference.”
The submission also stated that further evidence of broker’s commitment to their clients best interest can be seen in the extremely low number of AFCA complaints against insurance brokers. For example of the 607 complaints received by AFCA in relation to small business insurance less than eight percent were complaints against an insurance brokers.
“Rather than providing incentives for conduct which leads to widespread client detriment (for which there is no evidence at all), general insurance commissions provide a number of benefits small business clients, especially when a client’s business risks are difficult to place in the insurance market, and when a client has a challenging claim that needs to be negotiated with the insurance company. In both of these cases, the insurance broker acts without charging for the time and effort involved.”
NIBA also noted Royal Commission recommendation 2.6 in relation to the proposed 2022 review of remuneration arrangements for general insurance products, and that the Association looks forward to making a substantive submission to that review. The submission stated, “It would be premature for the Federal Government to take action in relation to general insurance remuneration arrangements prior to that review being undertaken.”
NIBA’s response highlighted that this recommendation was made without any evidence of client detriment and under the incorrect assumption that removing commissions would reduce costs to small business owners.
The submission stressed that in a hardening market, insurance brokers play an even more critical role in helping small businesses navigate the insurance landscape and ensuring their cover remains appropriate to their level of risk.
