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Banning broker commissions, why its not a good idea?

December 18, 2018

With the ongoing Royal Commission and the discussion swaying towards abolishing commissions from insurance brokers I am concerned that this has not been thought out and what the implications could be, should this kneejerk reaction be implemented. Banning insurance broker commissions, would, in my opinion, see not a decrease within pricing but instead an increase and, as with personal lines insurance, a reduction within the knowledge base of advisors as smaller brokerages who both keep the national and international brokers 'honest' but also service the smaller clientele not ‘desired’ by the bigger brokerages would be lost.

 

From a personal standpoint I don't agree with the commission structure and feel that there is scope for it to be abused by unscrupulous brokers, however, it is the best feasible solution. Insurance brokering is not like financial planning where a small SME client is going to pay an engagement fee and /or a fee for an advice report. Instead, those smaller SME's will more than likely choose to either do their own insurance or go uninsured. This I believe, would see a raft of issues, from the obvious no insurance, to clients having incorrect and /or inadequate policies put in place. Speaking from my experiences, in the past 6 months I have secured two clients who had previously placed their insurances themselves via a direct model, to then incur losses and both found out that there was no cover in place. Fortunately I was able to help them through the process when they became clients of mine and we have managed to mitigate the damage, but it could quite easily have seen two lives ruined…

 

The fact of the matter is that business owners currently have so many things to take on board and be ‘masters’ of that this would add yet another straw to the back that is SME business. It will put small business, most of who only have a small insurance budget, to possibly make further cost cutting efforts in order to afford insurance advice, which previously used to be free and, should these changes be implemented, now cost hundreds (or thousands), that before the actual cost of the policies, which no doubt would rise owing to the reduced competitive nature of the brokering market.

 

As I said, is the commission structure ideal? arguably not, but it does allow greater competition within the industry. Perhaps it would be better for the author of the report to instead consider the transparency and quality of the information which brokers provide to their clients, along with the punishments which are handed when malfeasants occurs to be reviewed more fully, rather than pressing the nuclear option of banning commissions. Perhaps though this would force greater scrutiny in areas and sectors were it is not welcome? Perhaps the end game of the report is to remove competition element in the form of the smaller brokers and instead just have three or four main brokers, after all that does seem the way of the governments Australian business model, remove the little guy and have a ‘big 4 or big 5’ to service the big end of town whilst leaving the SME market to make do…

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