New in­sur­ance reg­u­la­tions af­fect free choice

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Pa­trick Bracher

They are sup­posed to re­late to in­ter­me­di­ary ser­vices but they cut deeply into the com­mon law of agency and the many re­la­tion­ships be­tween pol­i­cy­hold­ers and their bro­kers

IF, LIKE many peo­ple did, you went on hol­i­day dur­ing De­cem­ber 2011 happy with the in­sur­ance bro­ker you have been deal­ing with for 20 years, you would, prob­a­bly with­out know­ing it, have ar­rived back in Jan­uary hav­ing to re­con­sider the re­la­tion­ship.

New reg­u­la­tions deal­ing with in­sur­ance in­ter­me­di­aries were pub­lished in the gov­ern­ment gazette on De­cem­ber 23 2011. Even if you are a sub­scriber to the gazette and read it reg­u­larly at bed­time you would have been lucky to get it be­fore De­cem­ber 28. Most of us ig­nored law changes till we re­turned from hol­i­day af­ter the new reg­u­la­tions came into force on Jan­uary 1 2012.

You now have to de­cide whether you or your com­pany wants to choose a bro­ker who is a man­dated bro­ker or a non-man­dated bro­ker. The reg­u­la­tions do not al­low a bro­ker to be both. A man­dated bro­ker can do any act in re­la­tion to your in­sur­ance pol­icy that binds you legally with­out ask­ing you first. You will have to give a man­dated bro­ker au­thor­ity to act in their dis­cre­tion. That is all very well but you may not want to make such a stark choice. The last thing most of us want is an ex­change of e-mails with our bro­ker ev­ery time a house­own­ers’ pol­icy or mo­tor poli­cies are re­newed at the end of the year from month-tomonth. On the other hand, you may have had a long re­la­tion­ship with your in­sur­ance com­pany and would want your bro­ker to tell you be­fore can­celling your ex­ist­ing ar­range­ments and en­ter­ing into a pol­icy with an­other in­surer that you do not like.

The prob­lem is that the way the bro­ker gets paid is dif­fer­ent in each case. If you give the bro­ker a man­date to do any­thing on your be­half, they can­not per­form any bind­ing ser­vices re­gard­ing the pol­icy on be­half of the in­sur­ance com­pany. All the man­dated bro­ker can get paid out of your pre­mium is the usual bro­ker’s com­mis­sion. If they per­form other ser­vices for which no com­mis­sion is payable the bro­ker can charge you an ad­di­tional fee for the ser­vices that are ren­dered over and above pol­icy fees that you might be obliged to pay at the mo­ment. You could be fi­nan­cially worse off.

Fur­ther, if you man­date your bro­ker in or­der to avoid be­ing both­ered by ev­ery decision re­lat­ing to your pol­icy, some of the ser­vices you are ac­cus­tomed to re­ceive will no longer be avail­able. Many of us are happy to have the bro­ker deal with our claims. The bro­ker may be a trusted bro­ker of years stand­ing. Or your bro­ker may be part of a ma­jor bank­ing group. You would know very well that if you are not treated prop­erly at the claims stage you can use the mus­cle that your re­la­tion­ship with the bank gives you to get the claim prop­erly dealt with.

There are other odd­i­ties. As­sume that you own your home in joint own­er­ship with your wife. You know your bro­ker and are happy to give a man­date. If your wife does not want to give a man­date, each of you now has to have a sep­a­rate bro­ker if you want the as­sis­tance of broking ser­vices. The out­come is ab­surd.

The reg­u­la­tions, which are sup­posed to be in­sur­ance reg­u­la­tions re­lat­ing to in­ter­me­di­ary ser­vices, cut deeply into the com­mon law of agency and the many re­la­tion­ships be­tween pol­i­cy­hold­ers and their bro­kers. That is not the in­ten­tion of the in­sur­ance laws nor is it man­dated by the in­sur­ance laws. The le­gal­ity of this as­pect of the reg­u­la­tions is doubt­ful. Most in­sur­ers and bro­kers are reluc­tant to take on the au­thor­i­ties and the reg­u­la­tions will prob­a­bly limp along un­sat­is­fac­to­rily un­til some­one is threat­ened with a big fine or a crim­i­nal of­fence and the right to pass reg­u­la­tions with such a far-reach­ing out­come is fi­nally chal­lenged. In the mean­time you might find that your free choice in re­la­tion to ap­point­ing your favourite bro­ker is un­fairly tram­pled upon.

Pa­trick Bracher is a se­nior part­ner at Nor­ton Rose.

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