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Broker Insurer Administration Agreements

There is no legislative requirement for brokers to execute formal agreements with product issuers. However, ASIC’s expectation is that financial service providers will have agreements that document the relationship between the broker, acting as agent of the client, and their service providers. This includes insurers and other issuers of insurance products.

It is in the broker’s interest to have agreements executed with each product issuer to document the obligations of the product issuer and the broker in connection with the placement of insurance contracts for new business and renewals.

If the parties to the agreement cannot agree on the terms and conditions of the agreement, as a minimum, the broker and product provider should agree and execute a terms of trade agreement. The terms of trade agreement will document the terms to apply between the parties relating to:

  • Interim cover for new business and the period;
  • The period in which closings are to be submitted for new business by the broker;
  • The time by which renewal invitations will be issued by the insurer;
  • The time by which renewal instructions are to be provided by the broker;
  • The period by which the insurer will extend cover post the renewal date;
  • Broker entitlement to commission and commission rates;
  • The time allowed for the payment of the net premium to the insurer;
  • The time allowed for the broker to advise the insurer of premiums that have not been received;
  • The process for the cancellation, variation or avoidance of policies and the issue of return premiums and commission on cancelled policies.

From the perspective of the broker, there are distinct benefits of having agreed the basis of the relationship between the broker and the product issuer. The benefits include:

  • Complies with the expectation of the regulator, in the interests of consumer protection and the integrity of the broker;
  • Certainty of conduct between the parties in their dealings;
  • Consistency in the expectancy of documentation;
  • Documents the standard of professional service expected;
  • Identifies potential failings of the parties that can be quickly rectified;
  • Assists in avoiding potential errors and omission claims that involve dealings with the product issuer.

From the perspective of the product issuer, the benefits of having an agreement with the broker include:

  • Compliance with the requirements of the regulator;
  • Avoids potential disputes in the relationship with brokers;
  • Provides a contract of enforceable undertakings between the parties;
  • Provides a basis for accountabilities between the parties.

Stakeholders – Parties to agreements that provide financial products may include:

  • Direct insurers
  • Direct insurer agencies
  • Underwriting agents
  • Lloyd’s agents
  • Wholesale brokers.