One year ago this month, the National Insurance Brokers Association (NIBA) implemented a new Insurance Brokers Code of Practice. Oscar Shub (pictured above) expects another review of the code to start in a few months.
“In the discussions that we’ve had with the NIBA executives and board, we understand that they will start the review early in 2024,” said Shub, who is chair of the Insurance Brokers Code Compliance Committee (IBCCC).
One big reason for the early start could be strong differences of opinion from brokers and industry stakeholders over fee disclosure.
“In our discussions, we will be calling on them to review 6.1 and we are hopeful that we’ll have a sympathetic ear,” said Shub, looking ahead to the coming review.
Section 6.1 is the part of the Code that deals with the disclosure of broker fees. Controversy over that section was part of the reason why its implementation was delayed a year, until this month. In a media release, NIBA referred to this as “the final step” in the Code’s implementation.
Concerns about fee transparency came to a head mid-way through last year.
“We are not at all happy about it,” said Shub. “I have made it very clear to NIBA.”
Shub was referring to a code change announced in July. NIBA dialled back fee transparency obligations and announced that brokers would only be obliged to disclose commissions to a restricted definition of retail clients.
“This differs from the current obligation which requires brokers to disclose commissions to all individual and small business clients regardless of whether the client is a retail or wholesale client,” said NIBA president, Gary Okely, in a message sent to members.
It was an about turn, suggested Shub, on a decision made during 2022 to expand part of the disclosure clause already in the code.
“At some point during last year, the NIBA board determined that they would expand part of the disclosure clause, that’s the 6.1 clause, to cover retail clients and small to medium enterprises with full disclosure of all commissions,” he said. “We were very pleased with that.”
However, IT issues associated with implementing this new compliance obligation led to delays.
“Then, in about July, we were told that they were going back to the March wording, at which time we became very unhappy,” said Shub.
Consumer groups and some industry experts were also concerned. Schub said the IBCCC told NIBA “they should go back and consider reinstating the wording” that, after months of consultations, was originally set to be part of the new code.
“So NIBA are aware of our unhappiness,” he said. “They are aware that we are not going to be pulling back on our criticism but we will work with NIBA to try and get the wording back.”
Shub said the IBCCC is also about to take up “continuous engagement” with brokerages.
“It’s important for them to see how it’s going to affect the people who do not disclose fees and commissions because they rely on the narrow wording of retail client while competitors will no doubt be pointing out that they do disclose,” he said.
For Shub and IBCCC, getting the wording right, does not mean including the obligation to disclose fees to wholesale clients.
“No, retail and small to medium enterprises,” he said. “I think that we need to take it step by step. I think that most of the wholesale brokers are disclosing fees anyway because I think that they are working with people who want to know and who will ask the question.”
He also said “a large number of brokers” already disclose their fees the way the IBCCC would like them to, “even though they’re not obliged to.”
The fee disclosure issue, said Shub, tends to be worse with large commissions.
“I think people have no problem notifying or advising of the commissions that they’re earning on the minor percentages,” he said. “But I do think that they have more trouble when commissions are large.”
Shub said brokerages should be able to demonstrate to their client that there is value for the money that they’re charging.
“That’s what would have to change,” he said.
IB has reached out to NIBA for comment on this story and will publish any response.
What do you think of the way Section 6.1 of the code deals with broker fees and transparency? Please tell us below
