How does the Royal Commission affect crop insurance?

The recent Royal Commission report could lead to a blanket ban on commission for insurance brokers. In an industry where commission counts for a significant portion of a broker's income, what does the future look like and what should the crop insurance industry focus on?

How does the Royal Commission affect the insurance industry?

It's possible that commission could be banned entirely.

The Royal Commission's final report made 15 recommendations designed to bring regulation of insurance broking more in line with the wider financial services industry. Although there are no final decisions yet, it's possible that commission could be banned entirely unless the broker industry can come up with a good reason for retaining it within each sub-category of insurance.

As well as commission, other areas under the spotlight include cold-calling, add-on insurance and how claims are handled. However, final decisions are on hold until the outcome of another review by the Australian Securities and Investments Commission (ASIC) is published in 2022, providing some time for brokers to consider how to react to proposed changes and put forward their own recommendations.

Why should broker commission be banned?

One of the main concerns cited by the report is the possible conflicts of interests which could result in consumers receiving poor advice. Where one lender offers more commission than another, brokers may put extra effort into selling the more lucrative loans, even when other products are a better fit for the client involved. This means consumers may be tied into something they can't afford, or that won't yield the best results for them in the long run.

What else is there to consider when it comes to broker commission?

At present, the broker business model is largely based around the commission they earn from lenders. Rarely do consumers pay for the services of brokers. With such a significant portion of income coming from commission, if the ban does go through, brokers may be forced to charge their customers instead. Consumers will need to be able to afford to pay for advice if they want it.

The discussion should be about how to strengthen industry guidelines.

For the crop industry, this could enflame conversations about the number of farmers actually being able to afford insurance without support from the government. Especially following last year's droughts, concerns were raised about the industry being uninsured, and the problem was largely blamed on farmers feeling that premiums were out of their reach. There were calls for the Australian government to move towards a model more like the US, where crop insurance is part of the federal budget. 

It's also worth remembering that brokers are bound by an industry code of practice to protect the interests of their clients. With this in mind, some brokers argue that the discussion should be about how to strengthen these guidelines to ensure they remain relevant rather than a total ban on commission.

Farmer need to be able to access impartial advice about crop insurance.A total ban on broker commission could make it difficult for farmers to access advice when they need it most.

What should crop insurance brokers be doing in light of the Royal Commission?

Given that a number of the proposed changes depend on the outcome of the 2022 report, there are no immediate changes to the way crop insurance brokers work. The industry will have time to prepare for any changes that do materialise, and to be part of the conversation. However, the report does present a timely reminder that crop brokers cannot rest easy, and should always be reviewing their approach to sales, marketing and relationship building in order to grow and thrive.

Consider how your business deals with:

  • Understanding the risks – All farmers deal with different challenges according to their location and the crops that they grow, as well as broader social and economic influences. As an insurance broker, you need to have a clear understanding of the risks farmers face in order to be an integral part of the solution.
  • Keeping up with modern farming practices – How we farm has changed dramatically with the introduction of new technologies. Farmers are beginning to make use of more sophisticated land mapping technology, using drones and satellite imagery, as well as benefiting from automated processes. The insurance industry must keep up and understand how they can use this new technology to better inform policy decisions and recommendations.
  • Thinking creatively around marketing and sales – With Australia's vast network of farms, reaching farmers and building a reputation across the country is challenging. Brokers need to talk to their existing client base to understand how they can reach other farmers, and what sets their offering apart from competitors. They should know how they can reach new customers, and what techniques they can improve in order to ensure they gain the most from every sales opportunity.

Being a Primacy Broker

At Primacy, we ensure our brokers have the best possible range of products, tailored to the farmers we serve. We know what our farmers want, and work to provide a solution that's right for them. You can rest assured that you'll be able to offer the right products, no matter the changes that come. 

To find out more about being a Primacy broker, check our information page today.