The Insurance Brokers Code Compliance Committee has called for improvements after a “significant increase” in breaches related to disclosure of remuneration.

There were 106 such breaches last year, according to the committee’s annual data report released today, compared with 23 self-reported cases in 2022.

“It is crucial for brokers to provide clear information about any remuneration they receive,” committee chair Oscar Shub said. “Clients have a right to know about commissions or other benefits brokers expect from providing certain services.

“The sharp rise in breaches in this area is a clear signal that brokers need to do better.”

Brokers are required to disclose remuneration arrangements, including commissions, to retail clients under a provision that took effect last November under the updated 2022 code of practice.

The old 2014 code had a provision requiring brokers to tell clients how their services are paid for.

The committee’s 2023 report says the remuneration disclosure breaches were reported by 36 brokers and affected 8451 clients, making it the second-biggest breach issue in terms of number of clients impacted.

“We have been upfront and clear about the importance of disclosing remuneration and commissions to retail clients,” the report says. “The increased breaches of these obligations and the high number of clients impacted emphasises that there is more work for insurance brokers to do to ensure their practices align with the commitments in the code.”

Incorrect processes and procedures were blamed for 34% of the breaches, with processes and procedures not being followed accounting for 30.2% and manual error 23.6%.

In one example, a broker failed to provide notice of remuneration to a group of 46 clients that were incorrectly classified as wholesale customers. This was put down to incorrect processes and procedures.

“Disclosure of remuneration will remain a priority area for us,” the report says. “When we see continued breaches of these obligations, we will engage directly with the insurance broker to understand what it is doing to address the non-compliance.”

The report also reveals a significant rise in failures to meet policy renewal time frames and communication standards. The number of breaches relating to timely policy renewals increased by 48% to 2073.

“The code requires brokers to contact clients at least 14 days before their insurance cover expires,” Mr Shub said. “Timely renewal communication is vital to ensure continuous coverage and prevent potential financial risks. Unfortunately, too many brokers are falling short in this area.”

Click here for the report.