The insurance industry operates under a General Insurance Code of Practice directed at standards and consumer protection and other legislation covering the contents of insurance policies and standard cover for some domestic insurance policyholders. Insurance marketing and selling practices have been reformed by financial services legislation.

Contributor

Mark Attard

Partner, Clyde & Co.

Insurance agents and brokers

Last updated

1 July 2020

Insurance agents or authorised representatives and insurance brokers are both involved in the marketing and sale of insurance policies to the general public, and sometimes there is a tendency to confuse their roles. Generally speaking, insurance agents or authorised representatives act for insurance companies. They market and sell insurance policies for an insurer or insurers under an agreement with those insurers. They are normally paid a commission by the insurer.

An insurance broker, on the other hand, normally represents the interests of the consumer and will advise on a range of available insurance products to meet the consumer’s needs.

Parts 4 and 5 of the Insurance Code require insurers to ensure their employees and authorised representatives receive adequate training in respect of their insurance policies and services. Insurers are required to measure the effectiveness of their training and continually monitor the performance of their staff and representatives.

Corporations Act

Under Part 10.2 of the Corporations Act 2001 (Cth) (‘Corporations Act’), most brokers must be licensed. A broker can only use the descriptions ‘insurance broker’, ‘general insurance broker’ or ‘life insurance broker’ if authorised to do so through a condition in its licence. Under the Corporations Act, agents do not need a licence if they are authorised representatives of a licensed insurer.

The Corporations Act imposes additional disclosure requirements on agents, brokers and insurers that market and sell domestic insurance.

A Financial Services Guide (FSG) must be provided by licensees to retail clients as soon as possible. A FSG contains information about commissions and the dispute resolution procedures available to policyholders (pt 7.7).

A Product Disclosure Statement must also be provided at the earliest possible time.

Where the relevant insurance policy has been recommended by the insurer or broker before the contract is entered into, the Corporations Act also requires the provision of a ‘statement of advice’. The statement informs the consumer of the basis upon which the recommendation is made and discloses any potential conflicts of interest that may arise in the giving of the advice (pt 7.7).

Policyholders need to be mindful of the roles of brokers and agents. If a policyholder finds that the cover provided under an insurance policy is insufficient or coverage for a claim is declined by an insurer, then pay careful attention to the responsibility of the agent or broker in arranging that insurance.

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