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Capping commissions doesn’t work says ACCC

Insurance companies capping commissions does not represent an effective remedy, according to the Australian Competition and Consumer Commission (ACCC).

While the capping of commissions has represented an underpinning of the Life Insurance Framework (LIF), risk advisers are pointing to a recent ACCC determination dealing with the sale of add-on insurance by car dealers in which the regulator has dismissed such a strategy as not addressing the primary issues.

Indeed, the ACCC determination has declared that such a capping of commissions served the best interests of the insurance companies rather than the car dealerships and provided minimal benefit to consumers.

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In doing so, the ACCC rejected an application by the insurers for such a cap stating in its determination that: “At the outset, the ACCC notes that a collective agreement between insurers to cap the commissions that they pay to car dealerships will primarily benefit insurers at the expense of car dealerships, and provide minimal if any benefit for consumers”.

In a statement accompanying the determination, ACCC chairman, Rod Sims acknowledged the adverse findings of the Australian Securities and Investments Commission (ASIC) with respect to add-on insurance but stated: “A cap on commissions does not address these issues and will not remove the opportunity and incentive for insurers and dealerships to sell consumers expensive, poor value products”.

“This proposal doesn’t help to create an environment where consumers are in control and can benefit from effective competition. It is unlikely to address these market failures or improve the industry for consumers,” he said. 

“The ACCC considers that the proposed cap is unlikely to result in a public benefit. While insurers would benefit from a cap at the expense of car dealers, this conduct is likely to lessen competition between insurers, including by creating greater opportunities for explicit or tacit collusion and greater shared knowledge between insurers of competitors’ costs.” 

The ACCC chairman’s statement said the regulator was also concerned that the arrangements, if implemented, “could significantly delay the development of more effective solutions to the problems that ASIC has identified”.

The formal ACCC determination stated:

The ACCC considers the following public detriments are likely to arise from the conduct:

  •  Reduction in competition between insurers, including greater opportunities for explicit or tacit collusion and greater shared knowledge between insurers of competitors’ costs;
  • The likelihood that the 20 per cent commission cap becomes a de facto industry standard rate of commission; and
  • Delayed implementation of effective reforms which properly address the market failures that have resulted in the consumer protection issues identified by ASIC.



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Now we need the ACCC to address the cap on advisers commissions like it should have from the outset of the LIF legislation, it is a self fulfilling prophecy that we are the only elephants in the Room, no one is seeing us.

We all know the same applies to LIF. Which is why the ACCC's silence is a travesty. They have handed the life insurance companies enormous power. They have already shown they can't be trusted. Advisers have long held them to account by replacing policies that were no longer competitive. But those days will be over very soon. When adviser numbers drop sharply, they won’t even bother giving us any support. The dickhead 'independent' advisers who supported LIF will find they can't do anything in the risk space except calculate the benefit and hand over a 1800 number.

I'm waiting for the petitioning and subsequent legislation, that all consumers must pay and extra 20% for their goods from Myer, Woolworths etc because of their poor business practices, so that they can remain profitable. Not much has been said about the cannibalisation and poor business practices (pricing, replacement business, group insurance rates, auto acceptance of cover etc) these Insurers employed .... its all the Advisers fault.

Agreed Ben & Brown, the holier than thou idiots hwo are saying we should all charge F4S for insurances are narrow minded idealist zealots who like all of that ilk, do far more harm than good. FSC are the only collusive group that will benefit, not consumers, and there is nil difference between the car dealership scenario and LIF.

ACCC ought to be ashamed, (we know ASIC are biased so no chance of them feeling shamed in their one eyed approach), but more importantly, Mr Turnbullshiz is making an utter ballsup of his term and handing Shorten everything on a platter, including the next election. I've been a staunch Lib voter but will be voting for an independent next election, as will the vast majority of my retired clients who have been voting conservative for generations.

Any chance of our associations following this up

Time for the current Minister to express no confidence in the Regulator who contrived this outcome for their own twisted purpose !

Now is the time to be sending emails , making calls to these pollies and their helpers, its the perfect time for us to be heard. The LICG is working really hard behind the scenes on this, back them up by keeping up the pressure. We know the FPA and AFA have given up on this, don't bother with asking them to help, do it yourself by lobbying every chance you get, legislation gets changed all the time, dont let the FSC feather their own beds as per usual! They dont speak for us or the consumers just the fat cat managers looking for fat cat profits. Ben it wasnt only d-head independant advisers who supported this, I am independant and I didnt want LIF, neither did anyone else in my circle, look at who benefits from it the most and follow the money trail, dont blame fellow advisers, lots didnt agree with LIF, the ones that did which must be the minority already had enough cash flow to take the hit and probably already take level comm anyway imo.

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