On July 10, new informed consent obligations for insurance brokers take effect. A National Insurance Brokers Association (NIBA) media release described them as “a significant change” and president Nick Cook said its “critical for brokers to be well prepared.”
Many brokers are heeding this advice. NIBA’s second webinar about the Australian Securities and Investments Commission’s (ASIC’s) new rules takes place on Monday – last month’s first webinar was full to capacity.
“The new obligations are all about enhancing transparency, accountability and acting in the best interests of your clients,” said Ruth Lynch (pictured, left), co-principal with White Edges Advisory.
Insurance Business reached out to Lynch and her co-principal Lidia Jukic (pictured, right) to understand the impact of the new rules on brokers. Their firm specialises in legal, risk and compliance advice with a focus on evolving ASIC and APRA requirements.
“In plain terms, that means you need to clearly explain who is paying you, how much you will get, how often you will get it and what you’re doing for the commission before the policy is issued or sold,” said Lynch. “If the client does not understand and agree to this, you cannot accept the commission as it will be considered conflicted remuneration”
According to the regulator, this means brokers providing personal advice to retail clients will now need informed consent before insurance is sold to them.
The White Edge compliancy experts listed the specific disclosures brokers will need to make to clients:
Jukic said these details should be confirmed in writing with the client as soon as practicable.
“This all needs to be explained clearly, concisely and effectively in a way your client can genuinely understand – whether in writing or verbally and satisfy the criteria above” she said. “This means using plain English, being upfront about how you’re paid and avoiding jargon so they can make a genuine informed decision about whether to proceed.”
According to the regulator, any changes, including to the insurer or the payment terms will trigger the need to obtain an updated consent from the client.
Jukic and Lynch told IB that, generally speaking, the industry’s peak bodies have accepted the need for greater transparency and supported the changes. However, there are some concerns, they said, about the administrative burden of the new rules.
“The response from brokers has been mixed,” said Jukic. “Many accept the need for transparency and consent but are worried about extra administration, cost and complexity.”
She said other concerns include potential confusion and overlap with existing disclosure obligations, potential difficulty when commissions are not known at the time of advice giving and how to manage non-responsive clients.
“Overall, the industry is not resisting the changes but is focused on making sure the rules are workable and do not create unintended compliance traps,” said Lynch.
Jukic and Lynch provided a helpful checklist of steps for brokers to help their compliance. Here is an abbreviated version:
“The focus of the changes is about transparency and protecting clients, not banning commissions,” said Jukic. “With clear procedures, guidance tools and good record keeping, brokerages can continue to be paid for their services on a commission model while meeting regulatory expectations.”
How do you see ASIC’s new informed consent rules for brokers? What are your concerns about implementation? Please tell us below.
