Brokers Warned: Softening Market No Excuse for Unfair Remuneration Practices

The Australian Consumers Insurance Lobby Inc (ACIL) is warning insurance brokers not to exploit softening market conditions to alter remuneration structures to the detriment of clients — particularly without proper disclosure and informed consent. ACIL has asked ASIC, the ACCC, and the Insurance Brokers Code Compliance Committee to be on the lookout for this unscrupulous behaviour.

Brokers, as licensees under an Australian Financial Services Licence (AFSL), are required to act efficiently, honestly and fairly. Changing remuneration models during periods of premium reductions without transparent disclosure may contravene these core obligations.

ACIL Chairperson Tyrone Shandiman said “We have seen examples from previous soft market cycles, including in 2016, where brokers negotiated 20% premium reductions but failed to pass those savings on. Instead, they increased commissions on top of prior fee-for-service models, leaving clients significantly worse off without proper disclosure.  This conduct has even occurred with large, sophisticated clients such as high-rise buildings, showing that the industry's assumption that wholesale clients do not require disclosure is dangerously misplaced.”

ACIL notes that detecting this behaviour is not difficult. It is relatively simple for licensees and regulators to pull annual income reports from broking systems and identify sharp increases in remuneration following premium reductions. Where there has been no material change in the risk profile or policy structure, such increases warrant further scrutiny.

In its submission to the recent NIBA Code of Practice Review, ACIL made a number of recommendations specifically designed to safeguard consumers against this type of unscrupulous conduct, including:

• Requiring brokers to disclose any changes in their remuneration structures from the prior year, particularly where those changes disadvantage the client.

• Standardising disclosure obligations across both wholesale and retail clients.

• Requiring brokers with remuneration above standard industry levels to demonstrate the added value provided to the client.

Mr Shandiman added: “At a minimum, brokers must be upfront with clients when changing remuneration structures — especially where the benefit flows to the broker at the client’s expense. That means ensuring clients are properly informed and their consent is genuinely obtained. If current remuneration models are, as the industry claims, the right and fair way for brokers to be paid — then there should be no issue prominently displaying this information to clients. Concealing it doesn’t just undermine trust — it damages the professional image of the entire broking industry and reinforces negative perceptions about a lack of transparency.”

ACIL will continue to work with regulators, code monitors and industry bodies to improve standards and ensure fair treatment for all insurance consumers.