The Insurance Brokers Code Compliance Committee (IBCCC) has called on brokers to strengthen oversight of their representatives after a review found weaknesses in strata insurance arrangements involving brokers, strata managers and owners corporations.
In its report, Strengthening transparency and trust in broker-agent arrangements, the IBCCC reviewed seven brokers that collectively have 1,088 representatives in strata management.
The review found that some brokers were not consistently implementing the safeguards required by the Insurance Brokers Code of Practice. These included weaknesses in representative agreements, remuneration disclosure, management of conflicts of interest, and oversight of representative conduct and compliance.
Chair of the Insurance Brokers Code Compliance Committee Oscar Shub said brokers remain responsible for the conduct of representatives acting on their behalf.
“Owners corporations rely on brokers and strata managers to support complex, high-value insurance decisions,” Mr Shub said.
“When brokers use representatives or distributors, they need to make sure those arrangements are properly governed. Accountability cannot stop at the point where the broker hands work to a representative.”
Following the review, the Committee issued nine formal breach determinations across all seven brokers.
The Committee found that all seven brokers had agreements with representatives that did not meet Code requirements. In particular, the agreements did not include explicit obligations requiring representatives to comply with the Code, report potential breaches within five days, or immediately report complaints related to Code breaches.
“Broad references to relevant law are not enough,” Mr Shub said.
“The Code requires brokers to be specific about what representatives must do. If those obligations are not clearly set out, brokers cannot effectively monitor conduct, identify problems early, or hold representatives accountable.”
The report also found that conflicts of interest were not always well understood or effectively managed.
In some cases, representative agreements placed strata managers in a position where their obligations to the broker could conflict with their duties to the owners corporation. In one instance, the IBCCC found that an ownership and profit-sharing arrangement created a conflict of interest that had not been properly recognised or managed.
“Conflicts of interest need to be identified, explained and actively managed in the client’s best interests,” Mr Shub said.
“Disclosure alone is not enough. Brokers need to explain the conflict, how it may affect the advice or service being provided, and what steps they will take to manage it.”
The IBCCC also found that some brokers relied on representatives to pass remuneration disclosures to owners corporations, without adequate mechanisms to verify that the disclosures reached the client.
“Providing disclosure information to a representative is not the same as ensuring the client receives it,” Mr Shub said.
“Brokers need assurance that disclosures are reaching owners corporations. Without that assurance, brokers may not be able to show they have met their Code commitments.”
The Committee expects brokers to review their practices in light of the report. This includes strengthening representative agreements, identifying and managing conflicts of interest, reviewing remuneration arrangements that may create poor incentives, and implementing oversight mechanisms to verify that disclosures and representative conduct meet Code requirements in practice.
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The Insurance Brokers Code Compliance Committee is an independent body that monitors compliance with the Insurance Brokers Code of Practice. Its purpose is to ensure brokers maintain consistent and high-quality service standards for the benefit of clients, and to promote trust and confidence in the insurance broking industry.
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