Explaining exactly what you provide, or not, is an essential element of good service – and is invaluable if clients do raise issues.
A recent case reviewed by the Committee emphasises the importance of clearly communicating the scope of covered services to clients.
The case had been referred to the Committee by the Australian Financial Complaints Authority (AFCA). A client had asked its former insurance broker, a subscriber to the Insurance Brokers Code of Practice (the Code), for assistance in making an insurance claim, which was ultimately denied by the insurer due to lack of information. The client complained that the insurance broker’s management of the claim was unsatisfactory.
AFCA found substantially for the insurance broker and referred the case to the Committee to determine whether the insurance broker had breached the Code, specifically the service standards relevant to the case. The Committee determined that the insurance broker had not breached the Code. The Committee wishes to share with other Code subscribers and the wider community a number of points raised in the matter.
Insurance brokers provide value in many ways and offer many services – and not all brokers offer all services or to all clients. However, if a client is unclear about what they want or need, the roles offered by a particular broker and the precise scope of the services they provide, they may be unclear or misled about what to expect. This important client protection is addressed by Service Standard 4 of the Code: “We will clearly tell you about the scope of our covered services”.
It is crucial that both the insurance broker and client understand the limits on the scope of service and what the implications might be. Generally speaking, brokers should be alert to any signs of confusion or a lack of understanding on the part of the client.
Some examples of specific issues for clarification include:
- Does the insurance broker provide claims handling assistance on policies arranged by it.
- If a client asks for advice about motor vehicle insurance and the insurance broker only considers a limited number of products from approved insurers, the client should be told this.
- If an insurance broker is asked to give advice on the insurance needs of a client but cannot advise on certain types of insurance (e.g. life insurance) the client should be told this.
- If an insurance broker is giving advice based on an assumption, due to limited information provided by the client, the client should be told this and what the insurance broker believes the implications may be.
In the AFCA case which came before the Committee, the former client had engaged the broker for two years before severing the relationship. Almost a year later, lawyers for the former client contacted the broker seeking to lodge a claim under an insurance policy the broker had previously arranged. The broker said it could not assist as it no longer acted for the client. Subsequently, apparently due to their previous business relationship, the broker offered a standalone claim-handling service for a fee.
While AFCA only investigated the management of the subsequent insurance claim, the Committee’s focus was broader. Had the broker disclosed at the outset that it would not provide claims assistance in the case of severance?
The Committee determined that Service Standard 4 had not been breached because it was clearly disclosed in the broker’s Financial Services Guide (FSG).
While this met the standard, the Committee advises that as well as its inclusion in the FSG, the scope of covered services can be communicated at numerous points in the sales process to ensure client understanding. Relevant clarifications can also occur during the engagement. In circumstances like those before the Committee, it may be useful to remind a client who is changing brokers that no further claims handling service will be provided if that be the case.
The inclusion of any verbal communications and clarifications in file notes is always good practice and could – if the matter ever became the subject of a complaint – help support the broker’s case.
When implemented transparently and with professionalism, Service Standard 4 protects all the parties involved and makes for a better industry across the board.