Last month, the Insurance Brokers Code Compliance Committee (IBCCC) strongly defended its limited sanctioning powers. Chair Oscar Shub said penalty actions are not common. A sanction action last month consisted of referring three brokerages, that repeatedly failed to report breaches and complaints data, to the National Insurance Brokers Association (NIBA). No further action appears likely.
Is there a case for beefing up the power of the IBCCC to sanction brokers and brokerages?
Some evidence suggests that insurers are held more strongly to account. These firms are more often the target of Australian Securities and Investments Commission (ASIC) investigations. This can lead to hefty penalties following Federal Court rulings.
“There’s no justifiable reason for the disparity between the enforcement mechanisms applied to insurers and those applied to brokers,” said Tyrone Shandiman (pictured right) in response to questions from Insurance Business. Shandiman is a broker and chair of the Australian Consumers Insurance Lobby (ACIL).
He said consumers place the same level of trust in brokers as they do in insurers.
“If a broker fails to meet its obligations – especially on a repeated basis – that should trigger serious consequences, not just a quiet breach notice,” said Shandiman.
He said ASIC’s involvement is usually limited to breaches of the Corporations Act or other enforceable legislation and cannot extend to investigating whether brokers have met their Code reporting obligations to the IBCCC.
“This raises serious questions about accountability, given that Code breaches fall under industry self-regulation and lack the same enforcement weight,” he said.
Shub said the IBCCC’s charter does allow it to refer matters to regulators, including ASIC, “if we consider a matter to be serious.” He said that option is taken seriously and would be used “when appropriate.”
However, Shandiman said the current model needs reform.
“Brokers should be held to the same standards of transparency, accountability, and enforcement as insurers, especially where consumer detriment is involved,” he said.
The independent review of the 2022 Insurance Brokers Code of Practice is in its final stages. After extending the submissions deadline, NIBA said it was expecting the last ones by the end of May.
The IBCCC’s own submission to the review does call for it to have more powers, including named reporting.
“The banking sector has already agreed to this approach and the General Insurance Code reviewers recommended it,” said the submission. “Named reporting, when framed appropriately, can highlight outliers, help firms benchmark their reporting against peers, and encourage better compliance practices.”
Shandiman agrees, particularly in cases where there is repeated non-compliance, like the recent case involving three brokerages.
“While each case should be considered on its merits, when a brokerage fails to meet a mandatory reporting obligation for three consecutive years, as is the case here, that’s a clear and ongoing breach,” he said.
The ACIL chair said naming the broker involved can be an appropriate and proportionate consequence.
“Reputational accountability is often more effective than a private breach notice, and public naming would likely encourage greater adherence to the Code across the industry,” said Shandiman.
The IBCCC also wants funding for investigative powers.
“Self-reported data alone is insufficient for effective compliance monitoring,” said the IBCCC.
The monitoring body wants funding to carry out inquiries and targeted reviews.
“We see this work adding immense value as it will help identify opportunities for improvement and share examples of good practice across other industry Codes of Practice,” said the submission.
ASIC often pursues enforcement actions against or involving insurers.
In May, the Federal Court ordered HCF Life Insurance to pay a $750,000 fine after ruling that a term in some life insurance products could mislead consumers. The decision followed an ASIC investigation.
In April, ASIC announced it was suing Hollard Insurance for alleged “serious claim handling failures.” In a media release, the regulator said the case involves a couple from regional Victoria who made a claim following storm damage to their roof.
According to a statement filed in the Federal Court, “…the Comparison Service was a distribution platform for funeral and life insurance policies issued by Hannover Life Re of Australasia Ltd (Hannover), from whom Choosi received substantial sales commissions.”
Do you think the enforcement mechanisms governing brokers should be stronger than they are now or the same as those governing insurers? Please tell us your view below.
