Insurance Brokers Association responds to calls for disclosure on fee payment and greater transparency, explains how the new rules apply

Insurance Brokers Association responds to calls for disclosure on fee payment and greater transparency, explains how the new rules apply

Gary Young talks to personal finance editor Amanda Morrall email

The professional body representing insurance brokers in New Zealand says it welcome a call for greater disclosure around remuneration and insists the two-tier system under the new Financial Markets Authority does not dilute standards for its practitioners.

Gary Young, chief executive officer of the Insurance Brokers Association of New Zealand (IBANZ) said Monday the industry had undertaken steps to elevate professional standards among the 2,000 brokers it represented.

"Transparency is important and we don't have any objection to that,'' said Young in response to the Insurance Council of New  Zealand's formal request to Government that brokers be held to the same standard as authorised financial advisers when it comes to disclosure on pay.

Brokers, who act as intermediaries for insurers and mostly commercial insurance customers, are paid a commission and in some cases a fee on top if the product they're selling is considered to be more "complex.'' Now classified as Registered Advisers under the Financial Services Providers Act, there is a legal compulsion for them to be registered. (See the Financial Services Provider Register here.)

For more on Registered Financial Advisers and the differences between Category 1 and  Category 2 products see the Financial Markets Authority website here.

Young said IBANZ members already observed a practice of disclosing payment details when brokers received a fee worth more than 5% of the premium on top of a commission. He also said the issue being raised by the Insurance Council was somewhat overstated given that commissions paid to brokers did not vary by much and paled compared to fees and commissions earned on long-term investment products.

"You'll find the commissions are relatively low in our sector and all companies pay pretty much the same commission, so there's no incentive to go one way or another.''

Greater disclosure could encourage 'do it yourself' approach; Insurance is 'complex'

Young said one possible drawback to compelling greater disclosure from brokers on out how they were paid was that it could encourage a do-it-yourself approach among customers who may not fully understand insurance contracts and risks.

"For the average customer, it could be a bad call,'' said Young of a potentially diminished role for brokers.

"Insurance is complex, and not to get advice is a bad call.''

The Financial Markets Authority classifies insurance and mortgages as category two products, which are considered to be less sophisticated.

As such Registered Advisers (insurance and mortgage brokers) selling such products, are exempt from the scrutiny, skill testing and qualifications demonstrations now facing Authorised Financial Advisers who want to practice.

Young admitted there are were no formal qualifications per se for insurance brokers but said IBANZ strongly encouraged its members to have "Level 5" professional training similar to AFAs.

He said IBANZ was one of the few professional organisations with its own college, where would be brokers would obtain three levels of training. The Qualified Insurance Broker status garnered through the college required members to undergo 25 hours of professional development training on an annual basis.

In addition to that, the association voluntary subscribed to a Code of  Conduct that was comparable to the one imposed by Authorised Financial Advisers by the Financial Markets Authority.

"We've taken up that challenge of having less regulation by imposing our own, we don't want to be at a minimum level. We want to be higher than that.''

Young, with 35 years experience as an insurance broker, said he was confident the new regulations under the FMA would help raise overall standards of the financial services sector in New Zealand, without leaving brokers behind.

 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

4 Comments

Comment Filter

Highlight new comments in the last hr(s).

Lip biting time :) But let ME address some of the points that you posed that Gary Young, that did his best to avoid:

(1) Yes, Amanda, you too, without any qualifications can become an insurance broker

(2) 70% of insurance brokers do not meet the IBANZ voluntary level of expertise recommended.

(3) There is no compusion for an insurance broker to declare what level of commissions or fees they take. It is 'recomeneded' but not mandatory.

(4) What happens if an insurance broker is, or isn't, a member if IBANZ and fails to adhere to the 'voluntary' code of practice? Nothing! The broker just keeps on writing whatever business they like.

Nice interview, though, and my recommendation? Avoid Insurance Brokers like the plague, and go direct to an established principal writer. Why, in effect, pay two lots of commission? And regardless of what Mr. Young maintains, it's just not that complicated! 

 

Opinion based on a bad experience with one insurance broker in the past? Most add value and sound advice. Those who try to arrange insurance through a bank or online etc usually end up with the wrong products that do not pay out at claim time.  

I'd suggest you have a chat with any number of people in Christchuch, Kevin, and see how they feel about some of insurance policies arranged through brokers that, come the time of need, are proving difficult to get a pay-out against! And, NO, to answer your question! Not ONE insurance broker, but several over many years, in different countries. So at least take comfort from the fact that New Zealand insurance brokers are not alone in their  less than savory practices.

Insurance: An industry built on fear ( the insured; that things may go wrong) and trust ( also the insured; that they will be paid out).

I'm sure there are plenty of people in Christchurch who appreciate the fact they were responsible and insured their properties. Irrelevant whether they were arranged by a broker or not. I think you're just anti-insurance Snarlypus. Sounds like my rich uncle who hates insurance and decided not to insure his $150K boat. It sank and he lost $150K!