Rules and regulations

Insurance brokers are largely unregulated with no barriers on who can call themselves a broker. There are no minimum skill or education requirements and, other than the laws about fraud and misleading advertising, there are no rules covering what the broker has to tell you about themselves.

Payments

Brokers are usually paid by commission from the insurance company, once a policy is sold. This introduces a possible conflict of interest into their relationship with customers. Policies may be recommended not because they are the best, but because they pay the highest commission. Unnecessarily high cover limits may be recommended because they generate higher commissions.

New rules

New legislation for the financial advice industry (which includes insurance brokers) is to be implemented in 2010. It seems likely the new rules will succeed in removing some dodgy brokers, improve complaints procedures and improve the quality of information given to consumers.

However, there are no plans to do anything about how brokers are paid. And like all registered financial advisers, the main registration requirements for brokers will be minimal. They must, however, be part of an approved dispute-resolution scheme.

Brokers versus agents

You need to know whether the person you’re dealing with is a “real” broker selling policies from a number of insurers or is merely an agent representing one firm. Our mystery shopper came across cases where the broker seemed to be an agent.

Gary Young from the Insurance Brokers Association (IBANZ) says many who call themselves “brokers” are agents and can’t be relied upon to give unbiased advice. If a broker is a member of IBANZ (which has fire and general insurance brokers as its members) they must meet the association’s Code of Practice. All its members must represent at least three insurers and provide advice “objectively, independently and impartially”. The Code of Practice is backed up by an independent complaints body.

If you have problems with your insurance or the type of cover, the broker is responsible for fixing it up if the policy was bought through a broker. If the insurance was sold by an agent, then the insurance company is responsible.