Do you need to get informed consent from clients?

This month, the Australian Securities and Investments Commission’s (ASIC’s) new informed consent obligations for insurance brokers take effect. Many brokerages have spent recent weeks grappling with whether the new regulations apply to them and if they do, what to do about it.

On Wednesday, following “overwhelming interest” from brokers, the National Insurance Brokers Association (NIBA) is holding a third educational webinar to help brokers answer those questions.

“Informed consent is still one of the hottest topics around in the marketplace,” said Richard Klipin, NIBA’s CEO. “We know that there’s a lot of interest, in some cases concern, perhaps a little bit of nervousness around the informed consent obligations, exactly who it applies to and exactly where it applies.”

Three-part test to determine if informed consent is required

According to ASIC, the regulations require AFSL holders and ARs who provide, or are likely to provide, personal advice to retail clients, to obtain their client’s informed consent to receive an insurance commission before selling them the coverage.

Allyssa Hextell (main photo), NIBA’s head of policy and advocacy, said brokers operate according to either a general advice model or a personal advice model. “As the relatively recent Westpac versus High Court decision shows, regardless of whether or not a general advice warning is provided, it really does depend on the nature of the advice provided to the client and what a reasonable person would be led to believe that they are being provided,” she said.

During the second webinar, Hextell explained how brokers can decide if the informed consent rules apply to the particular coverage they are selling. “It’s a three-part test,” she said.

The first things the AFSL license holder or AR needs to do is, said Hextell, is decide whether they are providing or likely to provide personal advice? “If you are providing general advice and not taking into account the client’s financial objectives and needs or you are not leading the client to assume that you are,” she said, “the informed consent obligations do not apply.”

The next question to ask is if the client is an individual or a small business?

“So a small business for the purpose of general insurance and determining a retail client is less than 20 people or 100 [people] if involved in the manufacture of goods,” said Hextell.

A “no” answer to this second step, she said, also means the new rules do not apply.

Insurance covers that “may” require informed consent

The third question is determining if the type of coverage the broker is selling, actually comes under the informed consent rules.

Hextell listed the main covers that do:

Motor vehicle insurance
Travel insurance
Home insurance
Home contents insurance
Sickness and accident insurance
Consumer credit insurance
Personal and domestic property insurance
Medical indemnity insurance

What brokers must do to comply

Hextell said if the answer to these three questions is ‘yes’ the informed consent rules “may apply” and to comply, brokers must:

1. obtain the client’s informed consent to receive the commission benefit before the insurance is issue or sold
    
2. have the client’s written consent or a written record of their verbal consent
    
3. as soon as practicable, give the client a copy of their written consent or record of verbal consent.

What must a broker disclose to the client?

However, she said before a client can provide informed consent, the insurance broker must disclose certain information:

1. the name of the insurer of the relevant product (if known)
    
2. the rate of monetary benefit the insurance broker will receive, expressed as a percentage of the policy cost
    
3. the frequency and period over which the broker will receive the monetary benefit
    
4. the nature of the services that will be provided to the client in relation to the relevant product (if any)
    
5. a statement that it is a requirement of the law that the client’s consent must be obtained before the payment of an insurance commission
    
6. a statement that the client’s consent, once provided, is irrevocable.

“ASIC requires that the client be given a genuine opportunity to consider this information,” said Hextell.

For more information on NIBA’s informed consent webinar on Wednesday July 2, click here.

Are you an insurance broker? How are you going about implementing the new rules? Please tell us about some of your tips or challenges below