Brokers improve Code of Practice reporting, but more needed

The Insurance Brokers Code Compliance Committee's (IBCCC's) independent chair Oscar Shub says the National Insurance Brokers Association of Australia (NIBA) code's first full financial year of operation saw positive developments in brokers' breach reporting accuracy and effectiveness.

He attributes this progress to industry collaboration, education and guidance, but says reporting challenges remain, including under-reporting by some brokers.

Shub reveals that some brokers may provide less information about a breach than they have discovered. "They may give you some kind of potted summary, perhaps in order to avoid highlighting a terrible fault made by themselves," he says.

The 438 brokers monitored for the IBCCC report declared a record 4,624 breaches and 2,544 complaints.

According to Shub, the rise is due to targeted broker engagement and better data collection and reporting practices.

What goes wrong

"Most of the breaches relate to manual processes — for example, if somebody fills in something in the wrong place — or to practice and procedures," he says.

"Some brokers don't have structures in place to monitor breaches or complaints. Others may think that reporting too many breaches or complaints reflects badly on them."

Shub says a common breach occurred when brokers failed to alert clients that a policy was set to expire before the minimum of 14 days.

Elsewhere, the IBCCC found that breaches related to remuneration disclosure soared from 23 in 2022 to 106 in 2023, while policy renewal breaches jumped by 48 per cent, damaging client engagement and satisfaction.

In addition, the IBCCC says communication breaches affected over 766,000 clients, revealing a need for brokers to enhance clarity and responsiveness in client interactions.

A learning curve

"The reporting of breaches and complaints reporting is more than just an obligation for brokers," notes Shub.

"It is essential in identifying weaknesses and in driving industry-wide improvements. It enables the industry to learn and helps brokers with a complaint or breach to improve their processes and procedures.

"We learn from the common breaches and can pinpoint areas for the industry to focus on. There's been an improvement, and we want to see further improvement. This gives confidence to the community and makes the industry more transparent.

"We want to ensure that the industry as a whole is functioning well and that there are no systemic problems in any organisation that can be avoided by learning from its own mistakes or somebody else's mistakes."

Handling breach anomalies

"If an organisation is reporting an unnecessarily large number of breaches or complaints, we would work very carefully with it and look at its systems," says Shub.

"The purpose of the code is to get an improvement in professional practices. We are not looking for breaches or complaints to be reported to punish people. We're there to help them improve."

Shub notes that the code gives the IBCCC the right to impose sanctions.

"We prefer to work collaboratively. Nonetheless, sanctions can range from calling for additional training or publishing notice of a serious breach if we haven't been able to resolve issues with a particular broker. Or, we can report the matter to the Australian Securities and Investments Commission (ASIC)," he says.

Shub says the committee will initially make contact with brokers who are non-compliant.

"If it's a minor matter, we will work with them collaboratively, maybe through education or training, to achieve a better result and avoid the problem happening again," he says.

"Generally speaking, we find that people are cooperative. Most want to do the right thing. If they refuse to do so, or if they refuse to put in place systems to avoid the errors happening, then we have a right to publish the error and name them.

"We don't use that right very easily. We don't want to punish people. We're here to help. But if that doesn't help the situation, we would then refer the issue to ASIC."

Broker's perspective

Shane Moore, founder and managing director of Trade Risk, says: “We’re all humans and sometimes we make mistakes.

"By talking about them, we find opportunities to improve our processes or systems in a way that can reduce or eliminate the chances of that same breach occurring again.”

But he adds: “To be frank, I don’t think our breach reporting will help the industry as a whole, but it certainly helps us internally to improve.”

Tracy Scarella, compliance manager at McLardy McShane Partners, agrees that brokers' reporting is improving. "It's getting quicker, and brokers have become more familiar with it and the requirements," she says.

Like Shub, Scarella describes the situation as a learning curve and notes that as more automated processes are added, reporting has become easier.

However, she says: "Brokers sometimes don't want to admit they've made mistakes, or they see reporting something as a bad reflection on them.

"But we try to tell them that it is an opportunity to learn rather than a red mark against their names. Many brokers that are always happy to receive constructive criticism, but still others that don't believe there's any good news in that story."

Scarella says reporting non-compliance at McLardy McShane tends to relate to outstanding renewals and debtors in excess of credit terms.

Moore says Trade Risk has very few breaches, “but that’s by design rather than luck”.

“Using a quality CRM combined with clever automation means, we almost never have breaches relating to claim or renewal timeframes, and the quality of our data also reduces the overall potential for breaches,” he says.

“This leaves human error as the main cause of breaches, but the numbers are incredibly small and typically very minor.”

Scarella confirms that human error is also a cause of breaches at McLardy McShane. "We try to send a lot of follow-ups to our brokers and whenever we communicate with them, we say, 'It's not about being Big Brother. We're just helping you to manage things’."

She says getting reporting right involves constant messaging from different disciplines, including from compliance, the chief operating officer and the broker manager.

She notes that McLardy McShane has spent a lot of time on the major changes to the broker code and on developing processes for its brokers. It does regular broker audits and has invited feedback on its activities.

"Only just last week, we looked at changing what we're doing again because we think we found a better way. So, it's evolving," she says.

Enhancing capacity

Looking ahead, Shub says the industry will work on enhancing its capacity for investigations, especially in areas of non-compliance that hurt customers most.

He adds that the IBCCC is planning to work with NIBA and its independent reviewer when it commences its next review of the code early next year.

One area of its focus will be remuneration disclosure obligations for wholesale clients.

He says the IBCCC has already expressed disappointment over NIBA's rollback of remuneration disclosure obligations for wholesale clients.

"The reason that wholesale brokers have not been included in that obligation is simply that generally speaking, wholesale brokers are working with companies that are able to protect themselves and have in-house professional people working on their insurances," he says.

However, IBCCC believes that small businesses need to receive similar protections to those of retail clients. It also wants retail clients to get disclosure on commissions and fees beyond those on a list of retail products.

"Retail clients should have disclosure on the cost of any policy and not only on what are called 'retail products'," says Shub.

"We also want to ensure that conflicts are dealt with. Some insurance companies have arrangements with brokers that allow them to handle certain claims on behalf of the insurance company.

"We want to be assured that unmanageable conflicts don't happen and that manageable conflicts are dealt with appropriately.

"Added to this, we want to ensure that vulnerable customers are dealt with properly."