All authorised representatives (AR) are not created equal, and many brokers believe the time is coming when the industry regulator will have to sort out a muddle over exactly what an insurance broker is.

Because as the concept of the AR becomes more common in the industry, the term “broker” is at risk of being compromised.

The relevant financial services laws and regulations allow intermediaries to use a common licence to transact business. It’s something that exists across the financial services sector, but – perhaps typically – general insurance was slow to take up the opportunity it presented.

As former insurance broker Gary Seymour sees it, the proliferation of ARs was an unexpected consequence of the financial services reforms legislation of 2001, which simplified processes and rules and, in the process, complicated many brokers’ lives.

“I don’t believe many people, or the regulator, could have foreseen the emergence and rapid growth of the AR model,” Mr Seymour told an audience at the National Insurance Brokers Association (NIBA) Convention in Melbourne last week.

He was chairing a session on ARs, noting that while one AR model was a boon for brokers, allowing them to operate under a unified licence, another model enabled insurers to build a new sales channel that competes with brokers.

“Although I personally believed the AR model may have been an unintended consequence of the legislation and perhaps a move back to the old ‘life agent/tied distribution’ days, it has in fact turned out to be a potential game-changer for the distribution of general insurance products,” Mr Seymour said.

It has certainly changed the game for IAG with NAS, Suncorp with Resilium and QBE with Elders.

Mr Seymour asked: “Although the same legislation applies to insurer-owned or broker-owned AR networks, are they really the same thing?”

The subject was raised only at the end of the convention session, when panel member Tony Walker, the MD of PSC Connect Insurance Brokers, expressed his misgivings about the widespread use of the term “AR” and the growth of the insurer-owned AR networks.

“The true AR is a broker selling products and services to his customer that are available in the complete market, and not just taken selectively from one insurer,” he said.

Does the use of “AR” by two disparate but related groups ­– brokers owing allegiance only to their clients versus employees of insurer-owned networks – confuse insurance-buyers? The jury seems to be out on that question.

NIBA CEO Dallas Booth told insuranceNEWS.com.au the Insurance Brokers Code of Practice emphasises the need to “be transparent” by making it clear to the client from the outset just what the broker’s relationship with the buyer is.

“So an AR employed by an insurer should say he is acting on behalf of the licensee as a distribution agent.”

Of course, a significant number of licensees and ARs are not NIBA members, and therefore are not bound by the code of practice. This situation could change if a parliamentary committee working on this and other related issues mandates that people providing broker-type services be members of a professional association.

Mr Booth says NIBA is “agnostic” about ARs, but he emphasises everyone working in the broker space should always act in the best interests of customers and “be a good broker”.

Meanwhile, the AR channel is going from strength to strength, and opening up the intermediary industry to increased competition from other financial services professionals with already-substantial customer bases to mine.

Former Insurance Advisernet MD Adrian Kitchin – who has moved to Suncorp as Resilium’s MD – confirms what other industry observers have long feared: that the AR model provides an easy means of access to general insurance for financial planners and accountants.

“Any professional financial services business with a good customer base has the opportunity to become a broker AR,” he says in a report provided to insuranceNEWS.com.au by Suncorp.

And as competition for clients in the SME market heats up, he sees the deep pockets, compliance support and marketing clout of the “authorising entity” – in this case Suncorp –becoming a major factor for growth and the entry of new competitors for brokers.

Resilium is careful to call its tied AR force “agents”, to differentiate them from the insurance broker arm it formed last September.

And Mr Kitchin sees potential for growth in the “broker AR’ model as well, saying it “appeals to brokers who find the full broker responsibility onerous”.

“It means broker-ARs can focus on service rather than compliance and other back-office functions, which are generally taken on by the insurer,” he said.

As everyone agrees, the AR model has many permutations, and many of them have the potential to threaten brokers’ place at the top of the commercial insurance tree.

Competition coming from many directions – some of it with big marketing money, and others with big professional reputations – makes it even more important to ensure the term “insurance broker” becomes firmly associated with perceptions of specialised knowledge, advice and service.