The National Insurance Brokers Association (NIBA) will delay implementation of a crucial section of its new code of practice for 12 months following feedback from members on the challenges of changing systems and processes in a tight timeframe.

NIBA CEO Phil Kewin says in a note to members today that it became apparent following “discussions with a number of brokers and their IT providers” that the obligations detailed in Section 6.1 of the code – which covers disclosure of remuneration – couldn’t be completed before the November 1 implementation date.

As a result, the section will be effective from November 1 next year, while all other code obligations will start as scheduled.

insuranceNEWS.com.au is aware of strong criticism of Section 6.1 from a number of prominent NIBA member companies, with an informal proposal to form an alternative association for SME brokers also being discussed.

Mr Kewin told insuranceNEWS.com.au today the timeframe for making the required process and system changes had proved “ambitious” for the new disclosure requirement. He says the code was released later than expected and the issues had become more obvious as the deadline became a reality.

“In hindsight it was probably too ambitious,” he said. “There is usually a two-year transition for something like this, so we are still doing it in a shorter period of time than that.”

However, Mr Kewin says obligations in Section 6.2, around removing preferential remuneration and volume-based commissions or profit-sharing arrangements, will still take effect on November 1 this year, along with other changes that will make the code clearer for clients and ensure it is appropriate in meeting community expectations.

“That all still needs to take place, but it is the processes around disclosure, and recognising the clients that applies to, where it was clear that was creating the biggest amount of concern.”

There has been considerable debate within broking circles about the code’s definition of “small business”. Section 6.1 says a small business is one that “is or includes the manufacture of goods and employs less than 100 people”, or otherwise employs less than 20 people.

On disclosing remuneration, the section says that “if a client is an individual or a small business and we [brokers] are acting on their behalf, we will provide them with information about any remuneration (including commissions) or other benefits we will or expect to receive as a result of providing covered services”.

The section says the disclosed information provided must include the dollar amount of commission the broker will or expects to receive, any non-monetary remunerations, any fees payable by the client and whether the broker intends to keep any portion of the commission or service fee if the policy is cancelled before it is due to expire.

The code of practice, which was launched on March 1, forms an important part of NIBA’s response to the Treasury’s Quality of Advice review, which is looking at issues including broker remuneration. A report is due to be handed to the Federal Government in December.

Mr Kewin told insuranceNEWS.com.au at this stage it’s intended the now-delayed disclosure section will be introduced in its current form next year. He says there are ongoing discussions with members and the Quality of Advice review may also include recommendations that require a response.

“The important thing is that nothing has wavered in terms of our belief around transparency and self-regulation,” he said. “That is critical as far as we are concerned.”

In his note to members Mr Kewin says NIBA has always stated that the code is intended to be a “living document” – that is, one which adapts to changing circumstances – and the association will make amendments to ensure it remains relevant to all members and their clients.

“The implementation guide will also evolve as more examples arise as we continue to receive more queries in regards to the interpretation and implementation of the code,” he says.

“As the realities of practical implementation become more apparent, we will continue to take on feedback and if necessary fine-tune where appropriate.”