This section sets out the Service Standards that apply to the Covered Services provided by a Code Member.

The bold heading sets out the principal obligation.

In some cases it will:

• have no information under it e.g "1. We will comply with all relevant law". This is because there is no need to qualify such a basic requirement.
• have information underneath it which qualifies the scope of the standard. For example, "2. We will transparently manage any conflicts of interest" contains information underneath it that explains when this standard is met for the purposes of the Code.
• provides additional details dealing with different scenarios relevant to the Service Standard for example "5. We will discharge our duties diligently, competently, fairly and with honesty and integrity" where it distinguishes between:
  • the obligations that apply when the Code Member is acting on the Client's behalf and when acting on for the insurer; and
  • the obligations that apply to specific scenarios such as buying insurance and insurance claims.

Clients can feel comforted that insurance brokers are subject to a variety of legal requirements and consumer protection legislation. Some of the key examples can be summarised as follows:

Corporations Act 2001 (Cth) - Chapter 7

The principal legislation typically governing an insurance broker's conduct is contained Chapter 7 of the Corporations Act:

• Part 7. 6 Licensing and representative obligations,
• Part 7.7 Retail client conduct and disclosure obligations;
• Part 7.8 Account and money handling and anti-hawking requirements; and
• Part 7.9 Product Disclosure Statement and product issuer requirements
• Part 7.10 Market Misconduct And Other Prohibited Conduct Relating To Financial Products And Financial Services.

In summary, under Chapter 7 of the Corporations Act 2001 (Cth) which is regulated by ASIC:

• Insurance brokers providing a financial service covered by the Act must obtain a licence (an Australian Financial Services Licence - AFSL) to provide their advice and dealing/arranging services in relation to insurance products and other risk management products or act as an appointed representative of such a licensee (subject to certain limited exceptions);
• such insurance brokers are subject to general licensing obligations e.g. to provide services efficiently, honestly and fairly and comply with the financial services laws and have in place appropriate procedures to manage conflicts of interest etc;
• under the Act such insurance brokers cannot use the term "independent", "impartial" or "unbiased" if they receive remuneration, or other gifts or benefits from the product issuer, not rebated or passed to the Client;
• the Act also restricts persons from using the term "insurance broker", "insurance broking", "general insurance broker" or "life insurance broker" unless authorised to do so under their licence conditions;
• the Act makes a distinction between general advice (ie essentially advice providing a recommendation or opinion intended to influence a person to make a decision in relation to a product which not given based on a consideration of the clients' needs) and personal advice which is advice based on a consideration of the clients' needs;
• insurance brokers also have specific disclosure obligations to retail clients, including in relation to remuneration and conflicts i.e. Financial Services Guide, General Advice Warning and Statement of Advice/SoA exemption information requirements (where applicable); and
• insurance brokers are subject to other general obligations not to mislead or deceive etc in Part 7.10 which apply to retail and wholesale client business.

As a result of the Future of Financial advice (FOFA) reforms the following changes were also made in relation to insurance brokers who hold an AFSL. A distinction was made in the FOFA reforms in relation to general and life insurance because of the significant differences between such products and the issues relating to investment products which gave rise to the FOFA reform. In summary, the main changes are:

• A new statutory best interests obligation - This new duty to act in the best interests of the client applies to insurance brokers giving personal advice to retail clients on general and life insurance. More limited requirements apply for general insurance than for other products.
• A new appropriate advice obligation and an obligation to warn if information on which advice is based is incomplete or inaccurate information also apply to insurance broker providing personal advice to retail clients. This requires insurance brokers to only provide the personal advice to the retail client if it would be reasonable to conclude that the advice is appropriate to the client (assuming they had satisfied the new best interests duty). An insurance broker must also warn the client if the information on which the advice is based is incomplete or inaccurate.
• A new obligation to give priority to the client's interests - This will affect insurance brokers giving personal advice to retail clients on life insurance. It won't apply where an insurance broker gives advice solely in relation to general insurance.
• New obligations in relation to ongoing fee arrangements - This only applies to persons giving personal advice to retail clients for which they have an ongoing fee arrangement. Such arrangements are unlikely to arise in relation to risk insurance unless as a starting point the fee is payable by the client over a period of more than 12 months (other factors apply that may mean it is not applicable). It won't apply to an insurance premium or commission arrangements or one off fees.

• A new conflicted remuneration ban - monetary and non monetary - Unlike the other obligations above this goes beyond merely providing personal advice and also applies to insurance brokers and others giving general advice to retail clients.

  The monetary conflicted remuneration ban is not applicable to general and life risk insurance monetary conflicted remuneration (ie it won't affect commission, fees or premium). However, it does apply to a group life policy for members of a superannuation entity or a life policy for a member of a default superannuation fund.

  The non-monetary conflicted remuneration ban is not applicable to general insurance conflicted remuneration but catches all life risk insurance non-monetary conflicted remuneration subject to some carve outs. This means that it won't apply to insurance brokers or insurance intermediaries just providing advice on general insurance and the prohibition will not apply to receipt of commission. The existing legislative and common rules in relation to remuneration will however continue to apply to protect Clients.

  The above requirements are not able to be contracted out of and are in addition to any other obligations under the Act.

Who is a retail client

A retail client is defined differently for general and life insurance in the Act.

General insurance

A person will be provided with a service as a retail client if they are an individual or small business (ie a business employing less than100 people if the business is or includes the manufacture of goods or 20 people in all other situations) AND the service provided is in relation to one of the defined consumer classes (motor vehicle insurance product, home building insurance product, home contents insurance product, sickness and accident insurance product, consumer credit insurance product, travel insurance product, a personal and domestic property insurance product) (See section 761G(5) for full details)

Life risk insurance

A person will be a retail client, unless they fall within certain carve outs being:

• the financial product, or the financial service, is provided for use in connection with a business that is not a small business (same definition for general insurance above);
• the financial product, or the financial service, is not provided for use in connection with a business, and the person who acquires the product or service gives the provider of the product or service, before the provision of the product or service, a copy of a certificate given within the preceding 6 months by a qualified accountant that states that the person: has net assets of at least the amount specified in regulations; or has a gross income for each of the last 2 financial years of at least the amount specified in regulations a year;
• the person is a professional investor as defined in the Act.

Other legislation

There is a wide range of other legislation that an insurance broker must comply with, such as:

• the ASIC Act - This Act prohibits persons from engaging in misleading and deceptive conduct and unconscionable conduct. It also contains certain unfair contract protection for consumers in relation to standard form contracts.
• the Competition and Consumer Act 2010 - This Act contains anti-competitive conduct provisions prohibiting persons from engaging in collusion with competitors, third line forcing and other such conduct.
• the Insurance Contracts Act - This Act sets out the rights an obligations that apply between insurers and insureds and others for contracts covered by the Act. It only indirectly affects insurance brokers when acting as agent of an insurer.
• the Privacy Act - This Act imposes obligations on persons in relation to the privacy of personal information of others.
• the Spam Act - this Act imposes restrictions on unsolicited electronic communication.

General Law

Brokers can also be subject to a fiduciary duty. When acting as fiduciary, the broker must typically (dependent on the actual circumstances):

• not receive a secret commission, bribe or secret profit from a third party with whom it is dealing without the knowledge or consent of the client, or which was not contemplated by the client at the time of creation of the agency;
• not be placed in a position where its personal interests conflict with those of the client, unless the client, with full knowledge of the circumstances (i.e. the nature and extent of the interest), consents; and
• keep its client's information confidential, except to the extent otherwise agreed by the client.

Licensed insurance brokers, as part of their licence obligations under the Corporations Act 2001, are required to have procedures in place to adequately manage conflicts of interest - see ASIC Regulatory Guide RG 181 - Licensing: Managing Conflicts of Interest for details.

Note: The FOFA reforms also impose a more specific obligation to give priority to the client's interests which affects insurance brokers giving personal advice to retail clients on life insurance. It won't apply where an insurance broker gives advice solely in relation to general insurance.

A conflict of interest can arise if, while acting for a client in arranging insurance, an insurance broker is remunerated by the insurer, or has an association with the insurer or insurer's agent.

In such cases the insurance broker needs to consider how to adequately manage the conflict and clearly communicate with the client. This can involve avoiding the conflict if appropriate.

In relation to the commission (which most brokers receive as the standard form of remuneration as a percentage of the premium), insurance brokers will disclose where they receive a commission from the insurer in their Financial Services Guide or other relevant documentation so a client is aware of this fact and can ask further information.

The broker will also have to put in place procedures to ensure that the receipt of the commission does not result in them acting in their own interests rather than those of the client when providing any Personal Advisory Service. For example, a broker must not let a higher level of commission paid by one insurer influence their advice.

Note: see also FOFA restrictions referred to above regarding conflicted remuneration regarding advice given to a retail client on life insurance.