Insurance brokers will soon have a new code of practice. Phil Kewin (pictured), CEO of the National Insurance Brokers Association (NIBA), said he hopes a final version of the Insurance Brokers Code of Practice will be out in February. The closing date for any submissions on the latest draft is only days away – December 10.
“I think disclosure is what’s going to be the more contentious issue,” said Kewin.
The NIBA CEO said he expects the new code to be very similar to the current draft with some fine tuning based on the latest submissions.
An earlier, first draft of the new code was completely revised following submissions from stakeholders last year. For that draft, 10 submissions were received, including six from NIBA members.
The submissions from NIBA members were generally short but supportive of that first draft of the new code, according to an independent reviewer helping NIBA with the draft. However, reported the reviewer from Asperdel Consulting, one submission from a large broking firm suggested winding back some of the changes. The broking firm argued this was necessary, said the reviewer, “due to implementation challenges and the extension of commitments beyond that required at law.”
In contrast, the reviewer said submissions from the Consumer Federation of Australia (CFA) and the Insurance Brokers Code Compliance Committee (IBCCC) “strongly criticised the existing and proposed NIBA codes of practice and advocated for a complete re-write.”
According to the Asperdel consultant, issues raised by submissions included concerns that the code should go beyond the law and not simply restate it and that the revised Code should set higher standards and set direction for the profession, including in relation to ethical conduct.
Another issue from the first drafting revolved around the need to clearly spell out the limits of a broker’s role to clients.
An additional concern: “The Code should be clear on how obligations are enforced and allow anyone to report a breach of the Code,” said the consultant.
Transparency around remuneration disclosure was another issue in the first draft.
“Questions remain about what should be disclosed and how, in order to promote transparency and assist effective decision making,” said the consultant.
The latest draft includes modifications based on these submissions.
“Based on the feedback received during the consultation period the previous draft code has been overhauled and a new code built from the ground up, resulting in a clearer, more client-focused code that builds on NIBA’s commitment to greater professionalism as an industry,” says NIBA’s website.
As this latest draft is tweaked, Kewin said the disclosure issue remains the most contentious.
“One could argue that it’s not an issue because if you look at the Banking and Financial Services Royal Commission there were no issues uncovered involving brokers or broker renumeration that showed systemic issues or customer detriment so therefore, one could say, where’s the need?”
However, Kewin said there is a need.
“Community expectations continue to develop and it’s important for us to dictate our own terms rather than have them dictated to us. If we’re to be considered a profession, we need to ensure that we’re setting standards above community expectations,” he said.
Industry veteran John Trowbridge, in his landmark report for the Insurance Council of Australia (ICA) looking at ways to make commercial insurance more affordable and available, raised similar broker disclosure issues.
“I’ve advocated that there be clear disclosure. I mean, some people say you shouldn’t have commissions at all, others say they should be regulated. I say, leave them, let them exist, but make sure people know what they’re paying, because a lot of people don’t and they’re not told,” Trowbridge said to Insurance Business when his final report was released in September.
“I think the insurance industry, including the brokers, understand that if they don’t support the community properly, in other words if they engage in practices which the community doesn’t tolerate then they’re likely to be legislated,” he said.
Trowbridge suggested that a solution to the issue of fees disclosure could be a new code of practice for brokers. Kewin said this issue is one of the key changes in the latest code draft.
“I wouldn’t phrase it around brokers not disclosing fees. I’d phrase it around the fact of just setting what the guidelines are around expectations and disclosure because brokers do disclose their fees, commissions are disclosed if the clients request it,” said Kewin.
“It’s about setting a higher standard and ensuring that when you enter into an agreement the client understands what they’re paying for the service and that that’s normal business operations,” he said.
The Insurance Brokers Code of Practice is independently administered by the Australian Financial Complaints Authority (AFCA). NIBA says it is committed to ensuring that this code promotes higher standards and professionalism in the insurance broking industry.
