Insurance agents or authorised representatives and insurance brokers are both involved in the marketing and sale of insurance policies to the general public, and sometimes there is a tendency to confuse their roles. Generally speaking, insurance agents or authorised representatives act for insurance companies. They market and sell insurance policies for an insurer or insurers under an agreement with those insurers. They are normally paid a commission by the insurer.
An insurance broker, on the other hand, normally represents the interests of the consumer and will advise on the range of available insurance products and selection of appropriate insurance to meet the consumer’s needs.
Section 5 of the Code requires insurers to ensure their employees and authorised representatives receive adequate training in respect to their insurance policies and services. Insurers are required to measure the effectiveness of their training and continually monitor the performance of their staff and representatives.
Under the Financial Services Reform Act 2001 (“FSR Act”) most brokers need a licence. A broker can only use the descriptions “insurance broker”, “general insurance broker” or “life insurance broker” if authorised to do so through a condition in its licence.
Under the FSR Act, agents do not need a licence if they are authorised representatives of a licensed insurer.
The FSR Act imposes additional disclosure requirements on agents, brokers and insurers who market and sell domestic lines of insurance.
A Financial Services Guide (FSG) must be provided by licensees to retail clients as soon as possible. An FSG contains information about commissions and the dispute resolution procedures available to policyholders.
A Product Disclosure Statement (PDS) must also be provided at the earliest possible time. The purpose of the PDS is to explain the features of the proposed insurance contract so consumers can assess whether the insurance policy meets their needs. The PDS must also inform consumers about their rights, obligations and commissions payable, and any other information which is known or might have an influence on a consumer entering into the insurance contract.
Where the relevant insurance policy has been recommended by the insurer or broker before the contract is entered into, the FSR Act also requires the provision of a “statement of advice”. The statement informs the consumer of the basis upon which the recommendation is made, and discloses any potential conflicts of interest that may arise in the giving of the advice.
Policyholders need to be mindful of the roles of brokers and agents. If a policyholder finds that the cover provided under an insurance policy is insufficient or coverage for a claim is declined by an insurer, then careful attention should be paid to the responsibility of the agent or broker in arranging that insurance.