Insurance News Magazine – April/May 2024

From the Publisher

Insurers are dipping tentative toes into the water as they subtly address a periodic issue known as The Issue That Cannot Be Discussed Without Shouting: brokers’ commissions.
In February CGU dropped the standard broker commission for home and landlord policies from around 22.5% to 17.5%, effective from June 1 for new business, renewals and quotes. Allianz, Hollard and QBE have imposed much the same level of cuts on home and landlord policies.
It was a bit like the second boot dropping. CGU dropped the first boot in May last year when it offered crop cover for rural brokers’ clients – but without commission. At that point of the process brokers had no real option, because crop isn’t easily available. The option they did have: impose a service fee or bite the pro bono bullet.
So do these moves by insurers, which were possibly a case of follow-the-leader, mark the beginning of a significant shift in the way brokers are paid?
Insurers say inflation, an avalanche of catastrophes, rising reinsurance rates and the fact that financial services companies need to make reliable profits are just some of the reasons for higher premiums. Of course, as those premiums rose dramatically over the past few years, brokers’ earnings soared alongside them. Just as they fall to earth when premiums plunge, as they periodically do.
Some of the commentary at Insurance News’ Where is Insurance Going? conference in Sydney in March certainly left little doubt that cost and price are top of mind for insurers, and affordability matters as the market warms.
Debates over commission levels, disclosure, fees v commissions and who exactly sets the commission have been running with gusto for 40 or more years.
But the cyclical rises and falls in brokers’ commission income always bend the debate. At low premium points the debate morphs into the merits of fixed fees over unreliable low commissions.
So have we reached the point where insurers will be tempted to enforce commission levels they say are in line with their profitability expectations? That brokers should share the pain to make the product more affordable?
Sorry, none of that is new. With the cycle turning up and insurers’ profits reaching sustainable levels in the next year, risk appetites will increase and the issues around commissions will vanish for a while as everyone chases new business.
But that’s only if the referee calls play-on. The simmering scandal surrounding commissions on strata insurance and the continuing regulatory and activist drive for greater transparency in the insurance transaction still pose a threat to the simplicity of commission payments that shift with the market.

Terry McMullan