Complexity crisis: Generalist brokers battle regulatory overload

Generalist insurance brokers are facing increasing burdens from layers of regulation and compliance requirements that, together with shifting insurer demands, threaten to overwhelm already stretched resources. According to industry leaders, these growing pressures are forcing brokers to overhaul processes that add little value for clients.

“The challenge that we experience is the workload and the complexity that's being added to the profession – and it's not complexity that's actually adding value to the customer,” said Richard Crawford (main picture), CEO of the Community Broker Network (CBN). “All of it is about control,” he said.

Read next: D&O's soft market broker challenges

The pressures Crawford was referring to are a result of a steady rollout during the last two years of new regulations relevant to financial services, some specific to the insurance industry.  Here are six of the most important:

1. Prudential Standard CPS 230 – Operational Risk Management

• Effective Date: July 1 2025 with some transitional relief for smaller entities to July 1 2026
• Impact: Applies to all APRA-regulated insurers and introduces heightened standards around operational resilience and third-party risk management. There are increased compliance obligations, especially around supply chains, distribution networks and contractual frameworks. Smaller firms have raised concerns about cost and complexity .
• Brokers/underwriting agencies: Insurance brokers are specifically referenced as material service providers for insurers and must be included in registers and risk management frameworks .

2. Financial Accountability Regime (FAR)

• Effective Date: March 15 2025 for insurers and superannuation funds
• Impact: Expands individual responsibility for misconduct, requiring implementation and testing of FAR frameworks. Increases personal accountability and requires robust governance and risk management

3. Privacy Act Reforms

• Effective Date: Passed November 2024, implementation ongoing
• Impact: Major reforms strengthen data protection and accountability, with new civil penalties, a statutory tort for serious invasions of privacy and higher standards for data governance. This increases compliance complexity for brokers handling client data 

4. Design and Distribution Obligations (DDO) and Unfair Contract Terms (UCT)

• Recent Developments: Ongoing updates and court decisions in 2024, including ASIC v Auto & General Insurance, which clarified UCT application to insurance policies.
• Impact: Brokers must ensure products are targeted to appropriate customers and contract terms are fair. The Federal Court’s 2024 decision requires brokers to review disclosures and contract terms.

5. General Insurance Code of Practice Review

• Status: Final report with 101 recommendations released December 2024
• Impact: Focuses on protections for vulnerable customers, financial hardship and claims handling. Brokers will need to adapt as the revised Code is implemented

6. ASIC Enforcement and claims handling

• 2024-2025 Focus: ASIC is prioritizing enforcement around claims handling, especially post-disaster and using its full regulatory toolkit. Brokers must ensure sufficient resources and processes to handle spikes in claims

Compliance changes brokers’ existing work systems

Compliance is embedded in the systems that brokers use which means these regulatory changes have significant implications for a broker’s work processes.

Read more: Is CPS 230 an industry “game changer”?

“So it actually changes the existing systems and structures we have in place,” said Crawford. “We have a legacy broking system that's the platform that all our members use so the moment you create new disclosures or new requirements at a customer interface level, then you basically have to reset the systems to do that.”

He said these changes require brokers to take a considerable amount of time learning and training to understand their implications and implement them correctly.

New compliance obligations and insurers “in a huge state of flux”

On top of this mass of new regulation, said Crawford, is the need for continual negotiation with insurers who are currently, said Crawford, “in a huge state of flux and change.”

This unstable state is partly a result of the soft market, which is still causing significant movements in pricing, risk appetites and the wordings and exclusions in the insurance contracts sold by brokers. It’s also caused by insurers’ continual digital upgrades which can be disruptive even if they are ultimately very helpful to brokers.

“So we're working very hard with our community members to help them streamline processes, remove complexity from regulations and just simplify a process so they can get on working with their clients and talking to them,” said Crawford.

Watch the IB website for soon to be published video interviews with Richard Crawford and other brokers, filmed at the recent NIBA Convention on the Gold Coast.