NIBA RULES / Rule 3: Code of Conduct - Brokerage
BRINGING A NEW CLIENT ON BOARD NIBA has developed protocols over a long period of time in order to ensure there is clear understanding between underwriters, brokers and ultimately clients as to where each one stands during the process.
W
e have had a number of inquiries and expressions of concern in recent months in relation to industry agreed protocols for bringing new clients on board. Of course, the client is always the key focus of attention, and it is crucially important that all parties are acting in the best interests of the client at all times. Also, it is entirely appropriate that the insurer/underwriter has full and proper confirmation that the client wishes the broker to help them with their insurance needs. There are three items I would particularly like to mention. Experienced brokers will be familiar with these matters, but less experienced brokers might not be familiar with these matters. The protocols are binding on all NIBA members and their employees and authorised representatives.
Before the broker is formally appointed
If a broker wishes to obtain a quote on behalf of a PROSPECTIVE client (i.e. before the broker has been formally appointed to act on behalf of the client), the broker should obtain a Letter of Authority to Review and Quote. The letter authorises the broker to make inquiries from relevant insurers, in order to be able to provide a quote to the prospective client. The letter should be on client’s letterhead, and should be signed by a director, financial controller or the owner of the business. The letter should be signed, dated and should state that it is valid for a certain period of time. More information about the Letter of Authority to Review and Quote is set out on the NIBA website.
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Once the broker is formally appointed
Once a broker has been formally appointed to act for and on behalf of a client, they should obtain a Letter of Appointment. Once again, the Letter of appointment should be on the client’s letterhead, and should be signed by a director, financial controller or the owner of the business. The letter should be signed and dated, and clearly set out the terms of appointment. The purpose of this letter is to avoid misunderstandings, confusion and disputes as between the insurer(s), previous and current insurance brokers, and the client. It is important to note that if an insurance broker represents the scope of their authority to act in a way that is broader than what the client believes it to be, the broker may be subject to action for misleading the client, and may also have breached their AFS licensing obligations and their duty to the client, amongst other things. There may also be a breach of their obligations under the Insurance Brokers Code of Practice. Further information about the Letter of Authority to Review and Quote, or the Letter of Appointment, including template letters, can be found on the NIBA website at: niba.com.au/ html/letters-of-appointment.cfm
Broker appointed at the time of renewal
One of the rules of NIBA membership relates to the allocation of commission and brokerage when the new broker is appointed to act for a client in relation to an insurance program that had been arranged for the client by another broker. This is NIBA’s Rule 3. Rule 3 applies where a broker (the
BY DALLAS BOOTH
Chief Executive Officer, National Insurance Brokers Association
new broker) is appointed to act in relation to a contract of insurance arranged for the client by another insurance broker (the original broker). This typically occurs when the original broker has arranged renewal of cover, and invariably has placed the cover with the insurer(s), and a new broker then takes over the business. Often this will involve the new broker collecting the premium for remittal to the insurer. Where this occurs, the new broker is required to account to the original broker for any brokerage received by the new broker in relation to the existing policy, as soon as is reasonably practicable after receipt of that brokerage. NIBA receives a number of requests for Rule 3 to be applied each year. Our approach is to determine whether the new broker has been appointed to act in relation to an existing contract of insurance arranged by the original broker. If this is the case, we will seek to apply Rule 3 in relation to any commission or brokerage that had been collected by the new broker. NIBA does not apply Rule 3 in cases where the new broker reviews the insurance program and arranges material changes to the client’s cover. Where there has been substantial change to the cover being provided, we do not believe the new broker is acting in relation to a contract of insurance arranged by the original broker. Rule 3 has been a key rule of NIBA membership for many years, and we ask all members to be mindful of the rule and to abide by its provisions when called upon to do so. NIBA’s Rule 3 can be obtained at the following page on the NIBA web site: niba.com.au/resource/ NIBA_rules_regulations.pdf
