ACCC Issues Draft Determination Denying Cap on Insurance Sales Commissions

07 March 2017

The Australian Competition and Consumer Commission (ACCC) has today issued a draft determination proposing to deny authorisation to 16 insurance companies to jointly impose a cap of 20 percent on commissions paid to motor vehicle dealers who sell their add-on insurance products.

The draft determination was issued in response to an application by insurance companies – who together accounted for the bulk of add-on insurance products sold through motor vehicle dealerships. They requested authorisation to enter into a cartel arrangement to limit total commissions on all add-on general and life insurance products distributed through motor vehicle dealers to 20 percent. This would have included any financial or other benefit in nature of a commission, and any form of monetary consideration. It would also include payments and benefits that may be described as ‘sign on’ payments, marketing or advertising subsidies or management fees. It would not apply to government charges or genuine reimbursements of expenses such as education and staff training.

The ACCC’s draft determination is significant because the insurers’ application was made, among other reasons, in response to an Australian Securities and Investment Commission (ASIC) report in September 2016 which found that the add-on insurance policy market sold through car dealers was ‘failing consumers’ and asserted, among other things, that a voluntary cap on commissions at 20 percent would have a public benefit of reducing premiums to consumers of up to 70 percent.

However, in its media release today, the ACCC has disagreed and stated that the proposed cap on commissions is unlikely to result in a public benefit and would create greater opportunities for explicit or tacit collusion between insurers. The ACCC also stated that the proposed cap could, if approved, significantly delay the development of ‘more effective solutions to the problems [in the add-on insurance market] that ASIC has identified’.

The ACCC expects to release its final determination on whether to approve the insurers’ cartel authorisation application in March 2017.

The full media release is available here.

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