Chairman of the Insurance Brokers Code Compliance Committee (IBCCC) Oscar Shub says the independent body is “deeply concerned” by the National Insurance Brokers Association’s (NIBA’s) decision to restrict disclosure of commission requirements to retail clients in the latest code.

As insuranceNEWS.com.au has reported, section 6.1 of the 2022 Insurance Brokers Code of Practice was altered in April last year to expand the remuneration disclosure requirement to include all individual and small business clients, not just those that fall under the definition of retail clients.

However, some NIBA members were unhappy with the change because of the added complexity and impact it could have on systems and processes, and implementation of 6.1 was delayed for 12 months until November this year.

NIBA then confirmed in July that it would revert back to wording that focuses purely on retail clients, sparking criticism from consumer groups and industry experts.

Mr Shub tells insuranceNEWS.com.au that overall the new code – which still outlaws contingent remuneration such as volume-based commissions – “is a significant improvement on the 2014 code”.

But he believes removing the disclosure requirement for small business clients is a “step back” that will have a significant impact.

“We are deeply concerned,” he said. “We feel that NIBA’s decision does not align the code with good practices and undermines trust and confidence in the industry.

“It will significantly reduce consumer protections with the disclosure of remuneration limited to retail clients and a very limited number of simple services.

“More complex services such as industrial special risk, business interruption, workers’ compensation and others will no longer be disclosed. 

“The latest change completely removes a broker’s obligation to disclose remuneration and commissions to small businesses.”

Mr Shub says the IBCCC was advised that the 12 month delay to implementing 6.1 was needed because it would require “significant adjustments to systems, processes, and procedures”.

But he says the committee had “no reason to anticipate changes to the section after it had been approved. NIBA continued to advise us that subscribers remained committed to complying with these obligations.”

In its July note to members, NIBA said reverting back to a focus on retail clients will provide consistency with the Quality of Advice Review recommendations and government response, and avoids “additional administrative complexity for brokers and confusion for their clients”. 

NIBA has also pointed out that many brokers disclose commissions to small business clients of their own volition.

But Mr Shub says “disclosure should not be discretionary”.

“We would like to see this practice formalised in the code, as it was approved by NIBA. The purpose of a code is to ensure the highest professional standards.

“The practical effect of NIBA’s decision for us will be to urge consumers to do their due-diligence and seek out the brokers that disclose fully.

“We will urge consumers to question whether a broker is acting in their best interest if the broker is unwilling to disclose remuneration and commission.

“Consumers should have full transparency regarding the incentives and potential biases of their brokers.”

Some have argued that because the law does not require the disclosure of commissions to small business clients, neither should the code. NIBA is not a regulator and its primary focus is to act in the interests of its members.

But Mr Shub says industry codes of practice play an important role in going “above and beyond” minimum legal requirements.  

“The obligations that were approved by NIBA are good practice and protect the interests of consumers. 

“This is the standard that has been set, this is what the community now expects, and this is the standard we want to see retained.

“Brokers are professionals and there are many professionals who are obliged to disclose their commissions to clients. Brokers have an important role to play and should be able to articulate that value to their clients.”

Mr Shub says the committee will continue to push for commission disclosure for small business clients, with consultation on the next code review likely to start next year.

“We will continue to advocate for amendments to the code that provide full disclosure to retail clients and small businesses,” he says.

“We will continue to apply pressure on this point. NIBA is well aware of our concerns, and we understand other stakeholders are also engaging with NIBA on this matter.

“We expect the obligations that were approved by NIBA to be reinstated.”