New insurance regulations affect free choice
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.