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Even though we see our clients on a regular basis and are always available to provide input regarding queries and questions, we can’t tell everyone everything as and when news needs to be shared. We also understand that there is a perception that there is almost too much information in the marketplace and that this often hampers the flow rather than enhances it. For this reason, we have chosen to provide formal input on compliance-related matters to clients via a monthly newsletter that allows us to communicate key issues that we consider worthy of our clients’ attention on a more regular basis.
The newsletter is issued at the end of each month and has regular features that include, but are not limited to, news from:
The FAIS Ombud
And a variety of articles we have read from the marketplace that we consider to be worth our clients’ attention.
Broker fees: The debate and disagreements continue
We have been spending a large amount of time reviewing the acceptability of fees charged to policyholders, not only by our clients, but by broker clients of our insurer and UMA clients, and even people who have no business relationship with us.
As the discussion and implementation of the correct standards around the charging of these fees started to gain momentum, we approached FSCA to see if they were issuing anything on the subject.We anticipated this was a debate that FSCA wouldn’t want to join, and certainly not in a public forum.
The requirement that insurers oversee the collection process, where they facilitate the process, seems to have added confusion not clarity, given the following:
- The differing approaches of insurers generally, specifically around the level of evidence required that the broker is indeed adhering to the new standards (the old standards not followed previously).
- Differing approaches by UMAs of insurers where the insurers are not driving the process for their UMAs.
- Whether the strict application to policies that fall within the PPR (where the oversight standards originate) is to be followed.
- Differing views on what facilitate means.
Faced with this mess of information, brokers have often struggled to formalise their approach and ensure that it:
- Keeps the compliance process happy given that the underlying fee disclosure standard is a FAIS standard.
- Gives the brokers the process and ability to prove that their standards meets the various insurer requirements.
- Is simplistic enough to allow for roll-out to the broker’s clients, which includes, most importantly, the explicit consent required from clients.This has proven to be a recipe for debate, disagreement, and some innovative thinking.We provided the Regulator with some examples of the differing approaches.While it is unlikely to provoke any regulatory oversight on the subject, at least for now, we feel they do need to know what is happening at the coalface.
“Below are some extracts of emails we received regarding broker fee activities.The names of the brokers and UMAs involved have been removed (not all of them are AC clients).
- “Disputing average application incorrectly applied to a client’s claim.
- Disputing incorrect excesses applied by insurers to a client’s claim.
- Disputing incorrect exclusions and policy conditions insurers use to dispute a claim.
- Disputing insurer-appointed loss adjusters’ recommendations and assessments.
- Assisting loss adjusters to obtain information from clients when they should be doing so.
- Disputing insurers’ incorrect interpretation of policy wordings.
- Assisting insurers to settle a claim.
- Educating insurers on the correct interpretation of policy wordings.
- Assisting insurers with credit control matters.
- Overturning unfair rejections and our success rate about 75%.
- Getting involved in assessments because sometimes the assessors appointed do notseem capable of wrapping up a claim and do “half jobs”.
- Disputing warranties/conditions/exclusions/excesses that are either applied incorrectly or interpreted incorrectly at claim stage.
- Disagreeing with assessors on many aspects such as Average and applying incorrect conditions/exclusions, etc.
- Policy wording interpreted incorrectly (despite it being their own wording).
- There have been issues with the service providers appointed by insurers (such as roadside assistance) where we have to stay on top of the insurer’s service provider to make sure that things go smoothly for the client.
- Checking insurers’ correspondence thoroughly prior to sending out as it is often littered with errors (be it an incorrect excess applied to a claim or an error in a policy schedule) [where we do not issue].”
We commented on the above, noting that assisting the client with the claims process can be a valid additional service, but advised the intermediary to steer clear of negative commentary aimed at the insurer.We also pointed out that an intermediary’s role is to act on the client’s behalf in facilitating, servicing and maintaining their policy. Many clients therefore opt to place their insurance through an intermediary rather than with a direct insurer, which means that regulated commission is payable for such services.
- “Negotiating with insurers at renewal to obtain favourable terms of your behalf.
- All costs relating to travel and consultations.
- Negotiating at claims stage to fast-track any claims that are submitted to obtain a fair and fast settlement.
- Costs involved in operating an efficient service to clients by maintain (sic) an up-to- date IT and communication system.Also involved are ongoing costs to do 18 hours of professional train (sic) per year to maintain a high standard of knowledge as required by the FAIS legislation.”Not recorded in the above list, but noted by the intermediary, are the costs of paying for entertainment such as lunches when meeting with clients.This intermediary pointed out that these costs are not covered by commission, and so he believes compensation is necessary.This broker fee on a commercial policy is R250 per month.The above additional services in return for a monthly broker fee have apparently been approved by the intermediary’s compliance officer as well as some of the insurers involved. Although the second and third services on the list can be justified, we believe that the first service is remunerated via commission from the insurer and expecting the client to compensate the FSP’s responsibility to remain compliant cannot be warranted.Our UMA and insurer clients are receiving fee consent letters from numerous intermediaries where the standards are inconsistent but some have been approved by other insurers, and they are now faced with the challenge of upholding their standards while still maintaining their broker network.
We saw another case which was quite concerning: the additional services are questionable but this intermediary is relying on tacit consent, i.e. sending an email to the clients which details the services and an indication of the fee, requesting a response, but at the end of the email they state that if they don’t receive a response they will assume that the client is in agreement. In this case, despite our protestations, the intermediary noted that several insurers have approved this process.
We can understand the reluctance to issue a written opinion on this matter where actual examples of acceptable services are listed, however the differing approaches by insurers as well as compliance officers has certainly resulted in widespread confusion and frustration by intermediaries (and underwriting managers) who seek to comply but are faced with the differing approaches and opinions. If some insurers adopt a relaxed approach in legitimising broker fees, we can only imagine that such insurers will be seen in a much more attractive light by intermediaries who may not have a genuine service offering to their clients over and above services as an intermediary.
In terms of our obligations as compliance officers, we find ourselves in a position where we cannot submit material irregularity reports on such cases due to the differing standards and opinions, and FSPs having had approval from some insurers on their processes.”
An email from a client who left us when they merged noted the following:
“We have today heard from a reliable and professional broker that his compliance officers, *****, have informed him that due to the fact that (1) he collects his premiums himself (not via an agency), (2) has a guarantee in place, and (3) already reflects the fees in question on his policy schedules – there is no need for him to further communicate with his clients with regards to the fees being charged and that letters such as the one contemplated above are not required.”
Really? We provided a suitable response, but it is not clear whose advice was followed.
Was this not a case where a degree of market-wide participation/agreement, which would include the compliance industry, was needed to ensure a level playing field? Right now, we don’t believe that the intentions of the Regulator are going to be met.