Insurance broker disclosure requirements in Australia
In Australia detailed disclosure requirements only apply to “retail” clients (basically domestic lines of insurance for individuals and small business). The intention is to ensure that retail clients of insurance brokers receive adequate information about the products and services being offered by the broker.
There are no detailed disclosure requirements in relation to clients other than retail clients. There is, however, a general obligation to deal appropriately with conflicts of interest which could necessitate the disclosure of a conflict of interest. The fact that insurance commission could be received would normally be required to be disclosed.
There are three broad areas of disclosure in Australia for retail clients, namely.
- The Financial Services Guide (FSG) which provides clients with an explanation of the services being offered by the insurance broker.
- Where “personal advice” is given there are additional disclosure obligations on the insurance broker.
- The Product Disclosure Statements (PDS) which provides clients with information about the actual insurance policy being purchased.
The Financial Services Guide
The FSG is required to be given to the client at the first meeting, it is intended to ensure that the client receives key information about the particular services being offered by the broker, including:
- Details of the insurance broker, name address licence number etc.
- The type and nature of the broker’s services e.g. whether or not personal advice is provided and the type of insurance and the insurers that the broker deals with.
- For whom the broker will be acting i.e. whether the broker will be acting for the client or the insurer.
- How the broker will be remunerated for their services, commission, fees and other benefits.
- Any association or relationship with insurers.
- Dispute resolution arrangements; what a client should do if they have a complaint and information about the independent dispute resolution scheme that the broker is a member of.
Additional Requirements Where the Insurance Broker Gives Personal Advice
Insurance brokers have additional obligations where they provide personal advice to retail clients.
- The broker is required to ascertain the client’s objectives and their financial situation and needs, investigate and consider the options available to the client, and base the advice on that consideration and investigation.
- In addition to providing the advice the insurance broker is required to disclose:
- Details of the remuneration that the broker will receive including in relation to commission and any other benefits.
- Details of any other advantage that the broker will receive if the advice is taken.
- Anything that might influence the broker’s advice.
The Product Disclosure Statement
The broad objective of the PDS is to provide clients with sufficient information to make an informed decision about the purchase of the particular insurance policy offered by the broker. The PDS is usually, although not always, prepared by the underwriter and is required to be given at the earliest possible time when a retail client is considering the acquisition of an insurance policy.
The type of information in a PDS for insurance includes:
- The name and contact details of the insurer.
- The benefits of the policy.
- Risks associated with the policy.
- The Premium payable and how it is calculated.
- Dispute resolution arrangements that the insurer has in place.
- “Cooling off” details in relation to the policy.
- Significant characteristics and features of the policy.
The general insurance industry in Australia has tended to satisfy the PDS requirement by attaching to the insurance policy the information required in the PDS.