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Breaches 'not always a bad thing', broker code compliance review finds

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Code breaches are not necessarily indicative of poor performance, according to an independent review commissioned by the Insurance Brokers Code Compliance Committee (IBCCC).

The examination, based on a detailed analysis of self-reported breaches in 2019 and 2020, outlines the underlying culture and behaviour of brokers who are subscribers to the Code of Practice.

“It is worth stressing that breaches of the code are not always a bad thing,” the review, titled Culture is Key, says.

“Lapses and process failures are inevitable. A breach ultimately means a broker has effective processes in place to identify and pick up issues.”

The review, released this week by the IBCCC, says there may even be a case for “reframing” breaches as a positive.

“With some exceptions, a broker reporting no breaches at all may be of more concern than a broker that has a small number of identified breaches,” the review says.

“The key is that breaches should ideally be minor, identified and resolved quickly.”

The National Insurance Brokers Association (NIBA), which owns the code, has welcomed the review’s wide-ranging findings. NIBA is working on a new version of the code and recently released a revised draft for consultation after criticisms that previously proposed changes did not go far enough to raise standards.

“[The review] is well balanced and highlights the fact that most breaches are as a result of poor practices or procedures, rather than brokers necessarily doing the wrong thing,” CEO Philip Kewin told insuranceNEWS.com.au.

“Even more importantly, the report focuses on what ‘good behaviours’ are, including multiple processes and lines of defence, investigating the root cause of a breach, learning from mistakes, and setting standards higher than the minimum required by legislation.”

The review undertaken by Behavioural Insights Team Senior Adviser Ravi Dutta-Powell says the IBCCC can promote good practices in a range of ways.

These include encouraging brokers to be vigilant against “inertia” and to seek to understand issues from a client’s standpoint.

In relation to inertia, the review says it is an example of behavioural biases where one assumes everything is okay unless there is a significant adverse event.

“This can be an issue in the insurance space, where clients (and often brokers) may regard renewals as a continuation of the status quo even when terms or the client’s needs or circumstances may have changed,” the review says.

The review says a number of breaches it examined stemmed from cases where the policy originally met the needs of the client, but no longer did due to a change in terms or circumstances.

“Brokers may need to be extra careful with renewals to ensure inertia does not cause them to miss key issues,” the review says. “Changes to terms and conditions, for instance, should be flagged explicitly by brokers in correspondence rather than left for the client to glean from an updated [product disclosure statement].”

The review says while the law sets a “bare minimum” for behaviour, these “minimums” can act as an anchor for higher standards.

“The [IBCCC] could consider creating new, better anchors of ‘good practice’,” the review says.

“By providing a higher standard for behaviour, brokers will have higher standards to aim for and, if they fall short, will still be meeting their legal requirements.”

IBCCC Chairman Michael Gill, who spoke at a webinar to discuss the report, says the law doesn’t have the answer to everything.

“I think it’s very important for us to remember that,” he said.

Click here for the report and here for the webinar.