The Insurance Brokers Code Compliance Committee and dispute ombudsman have written to the parliamentary inquiry into small business insurance to flag concerns over remuneration disclosure requirements in the new draft code.

As insuranceNEWS.com.au has reported, the code does not incorporate a key recommendation to expand disclosure requirements to all small business clients.

In a late submission to the inquiry, IBCCC chairman Oscar Shub warns if the code is approved in its current form, there is a risk that many small businesses “will not be able to make fully informed decisions about the insurance they are purchasing”.

“Small businesses are not necessarily sophisticated purchasers of insurance,” he writes. “Owners and operators are often managing competing demands and may have neither the time nor the specialist knowledge to understand complex insurance arrangements or investigate how their broker is remunerated.

“The protections provided to small businesses should recognise these circumstances. As it currently stands, the draft Insurance Brokers Code of Practice does not do that.”

Mr Shub says the National Insurance Brokers Association previously supported expanded disclosure requirements and has argued for greater protection of small business clients under a review of the insurers’ code.

Related article: ‘Why are brokers afraid of disclosing remuneration?’ asks code compliance chief

“Against this background, the draft [broker] code’s approach to remuneration disclosure is difficult to reconcile with NIBA’s previous and recent support for stronger and more consistent protections for small businesses,” Mr Shub says.

“The NIBA board is yet to make its final decision on the code and therefore still has an opportunity to address this issue through self-regulation.

“However, if broader remuneration disclosure requirements are not included in the final code, the IBCCC recommends that the [inquiry] committee consider legislative or regulatory reform to ensure consistent disclosure protections for small business clients.”

NIBA has argued the draft code includes enhanced remuneration disclosure requirements for strata customers, and an obligation to provide a dollar value on remuneration to all clients who ask for it.

It also says there is no evidence of harm that demonstrates a need for further expansion.

But many stakeholders, including the Australian Financial Complaints Authority, do not agree.

AFCA has also written a last-ditch submission to the inquiry, pointing out “significant gaps” in small business protections in the broker and insurer codes.

It says NIBA “continues to sidestep” the remuneration disclosure issue despite “repeated calls for reform”, adding that the draft code “does not address a fundamental gap in consumer transparency”.

“No one knows if there is consumer detriment if the arrangements are secret,” AFCA CEO and chief ombudsman David Locke told insuranceNEWS.com.au.

“Many good brokers already disclose the commissions and other payments they receive to all customers. There is no good reason why all brokers can’t do the same.

“NIBA agreed to do this and now has backflipped on that commitment.

“With some NIBA members fighting so hard against this, one has to wonder whether commissions and kickbacks are being received that they feel they can’t defend to their customers. NIBA needs to show leadership on this issue.

“We have a situation where the independent code reviewer, the code compliance committee and the independent ombudsman are all saying the same thing.

“Now is the time for industry to listen and reflect. If they are incapable or unwilling to do so, then AFCA will add its voice to the calls for legislative change.”

The submissions can be read here.

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