Hutchison Rodway in the media

More Transparency urged on insurance commissions

Waikato TImes - Maryanne Twentyman (30 July 2011)

A Hamilton insurance brokerage is calling for greater transparency of its industry through clearly identifying commission and fees to clients.

At a time when insurance premiums are ``hiking at a rate of knots'' due to the Canterbury earthquakes, so too are brokers’ incomes.

But Hutchison Rodway director Andrew Newman believes all insurance brokers should be declaring their income so that clients know exactly what portion of their insurance spend actually makes it to the insurer. ``We declare our income on all commercial accounts,'' Newman said. ``It's about being transparent.''

There is currently no obligation for insurance brokers in New Zealand to disclose their commissions and fees to clients, but at a recent Insurance Brokers Association of New Zealand (IBANZ) conference, brokers resisted suggestions from insurers that there should be greater transparency around remuneration.

Newman said questions were also asked about whether the broker industry could justify some of the high commissions intermediaries were currently receiving. He said Hutchison Rodway choose to rebate all commissions to the client and charge a disclosed upfront fee, so that clients know exactly where they stand. “Our clients know what we are earning, they [the client] engage us to act for them and our remuneration should be no secret.''

Pressure appears to be piling on insurance brokers to accept lower commissions, but IBANZ chief executive Gary Young claims that kind of pressure was unrealistic given that kiwi brokers were already ``sharing the pain'' of industry losses.``Brokers lost earnings when competition among insurers pushed rates down, and they resisted calls for higher commissions then. Why would we want to cut commissions now rates are rising? Its an over-simplification of the issue to concentrate on commission levels,'' Young said.

But QBE Insurance chief executive Ross Chapman believed the level of some commissions paid to New Zealand brokers could no longer be justified. ``At the end of the day the insurers are the ones carrying the risk and buying the reinsurance and that is not getting cheaper,'' he told a panel discussion moderated by insuranceNEWS.com.au publisher Terry McMullan.  Chapman said insurers and reinsurers were trying to rebuild their balance sheets, and he wondered whether it was reasonable to expect the broker distribution channel to take such a large slice out of the pot.

Despite the lengthy debate, Newman said the industry would not become transparent of its own accord and believes that legislative change will be required to force brokers to disclose their incomes and thereby justify the value they add.