Dotted Is, crossed Ts

As far as basic requirements for brokers go, an Australian Financial Services (AFS) license agreement is at the top of the list.

As a condition of operation, all insurance brokers are obliged to meet compliance requirements and operate in a manner that is efficient, honest and fair. But what are the best ways to prevent these requirements becoming a burden?

Because of the complexity of insurance products and their extreme importance to consumers, LMI Group Founder Professor Allan Manning says it’s important to have systems that ensure the people who are giving advice are qualified, in order to protect the consumer.

“Professions of equal importance, such as doctors, lawyers and pharmacists, have to do a minimum of four years tertiary education, while insurance advisors can practice straight from school,” he says. “Compliance requirements bring professionalism to a really important area of society and the economy.”

Technology solutions

In an effort to streamline their processes, CGU worked with CoTé Software and Solutions to develop an online portal tailored specifically to the company’s compliance needs. Before implementing the Virsaic system, CGU employed a National Compliance Team who travelled the country to audit brokers every six months. As one of Australia’s largest intermediary-based insurers, generating approximately $3 billion in premiums each year and employing 1500 insurance brokers and authorised representatives (ARs), this was an unsustainable task. Information from these audits was recorded on hard copy questionnaires and stored in various locations across the country, making it difficult to monitor company wide compliance.

Professions of equal importance, such as doctors, lawyers and pharmacists, have to do a minimum of four years tertiary education, while insurance advisors can practice straight from school.

The computerised system was implemented to replace the paper-heavy, human-resource intensive and costly process. The system has now been in place for two years and Now in place for two years, CoTé consultant Dianne Koorey says the system has streamlined operations.

The cloud-based system allows CGU to send out questionnaires and compliance assessments to multiple brokers and ARs at one time, and serves as a central location to publish compliance information and training materials. “The system automatically identifies individuals who aren’t hitting the mark with their answers and compliance understanding,” Koorey says. Within the questionnaires, each question is weighted based on its importance. If a broker or AR hits 200 points they are classed as non-compliant and an auditor is alerted. Koorey says: “The system hasn’t completely eliminated the human element as once notified, an auditor will work directly with individuals to overcome compliance issues.”

A review of the system revealed significant benefits, including yearly savings of $250,000, a 90% reduction in risk exposure, and a 10-fold increase in auditing coverage from 10% to 100% of ARs.

From a broker and AR perspective, the system reduced time spent completing lengthy paperwork, identified problem areas and offered up-to-date online training and support.

In the cluster

Steadfast is another company committed to providing their brokers with a suite of services that help them to meet their compliance requirements. Their key focus lies in their online Broker Compliance Control (BCC) system, which helps brokers schedule and track compliance activities.

Complementing this system is a range of detailed manuals that break down the steps brokers should take to meet their statutory obligations and maintain their licenses. To keep brokers up to date with any new regulatory developments ‘E-advices’ are regularly sent out via email, providing short legal advice on specialised topics.

Where LMI’s Professor Allan Manning says where brokers commonly fall short is in focusing on price or commission, rather than delivering the best possible advice to their clients.

To fulfil their duty as an insurance broker, Manning says brokers must fulfil six duties. “They need to know their client, including their risks and risk appetite, know the product range that’s available, be able to match the client to the product, place the cover immediately, document everything they do and then in the event of a claim help their client manage it well.”

Where Manning sees this done best is generally by the brokers who receive industry awards. “Because they are client-driven, they are the most successful and most profitable operations,” he says.  “Rather than see compliance as an expense, if done properly and diligently it improves a business and creates a better relationship with the brokerage and their clients.”

AFS requirements for brokers

  • Processes for managing authorised representatives that ensure they operate within their scope of authority.
  • Internal and external dispute resolution systems as well as arrangements for compensation.
  • Processes that regularly check the accuracy of promotional material provided to clients.
  • Policies that address anti hawking, privacy, spotters and referrers and outsourced services.
  • Appropriate controls to manage firm and client finances.
  • Consistent processes for recruitment and training of staff, as well as adequate succession planning.
  • Technology systems maintenance procedures.
  • Plans for business continuity and disaster recovery, as well as procedures for minimising and managing risk.
  • Procedures that protect consumers in the event a business fails.

Boost your compliance knowledge

NIBA College offers a range of compliance programs suitable for anyone giving advice or managing an organisation. NIBA offers two channels of programs, one for brokers and the other for individuals giving general and life insurance advice. Within these two channels a mix of extensive and short courses are offered across the different tiers of competency. Generally a short course in either the broker or general insurance channel will cover ASIC Compliance requirements, while the full courses cover a broader skills base.

“We divide our programs into blocks of two so it’s easy for people to get their compliance requirements done quickly,” NIBA Professional Development Executive Linda Evans says. “It also lays the groundwork for the skills and knowledge they will require within their roles.”

For brokers in a leadership role, NIBA runs an Advanced Diploma of Insurance Broking. The course focuses on high-level broking, technical, management and business planning skills and addresses the organisation capacity requirements outlined in the ASIC regulatory guide.

“When we first started to help brokers put their compliance in place we produced a lot of resource material as well as giving brokers access to NIBA assessors to run compliance audits,” Evans says. To stay on top of requirements, Evans recommends brokers establish a compliance checklist that they regularly review. “People have learnt by now that they don’t have to go overboard; they just have to make sure they have the right policies and procedures for the size and scope of their business,” she says.

“Whatever compliance system they use they must adopt realistic procedures that protect the needs of their clients and their business.” Evans urges brokers to not only stay abreast of compliance requirements but also other changes in legislation that impact the way they run their business.