With almost all insurance brokers offering premium funding contracts, the Committee that monitors the Insurance Brokers Code of Practice has held an inquiry into how such contracts are used, explained and, crucially, how financial hardship is handled in this arena.
The Insurance Brokers Code Compliance Committee (the Committee) has released the findings of its Own Motion Inquiry into whether and how Code subscribers use premium funding contracts, how the premium funding contract is explained to the client and the processes in place for dealing with clients in financial difficulty. Although such contracts are separate to insurance policies and generally issued by a third party, this area has emerged as a potential area of concern for clients experiencing financial difficulty.
A copy of the Report is available here.
How financial institutions respond to vulnerable clients and those in financial hardship was specifically addressed by the Committee in its submission to the review of the Insurance Brokers Code of Practice (the Code) currently being undertaken by the National Insurance Brokers Association (NIBA). Consumer and community awareness of how subscribers manage vulnerable clients is high and will only increase in the future.
The Committee’s recommendations for improvements in the area of premium funding and financial hardship – and the examples of good practice shared in the report – offer timely and important guidance for subscribers when navigating the premium funding process. The Committee reminds subscribers that assisting clients should be front of mind in all interactions.
Premium funding offers an alternative to large upfront premiums, allowing monthly instalments and the ability for businesses to consolidate premiums from a number of policies into one payment. A premium funding contract is between the client and a premium funding company, with the broker as intermediary. This model is especially useful for small and medium-sized businesses, a target market for insurance brokers.
The Committee’s inquiry was based on data supplied by 260 subscribers to the Code in the 2019 Annual Compliance Statement, and in follow-up discussions with 31 subscribers. The Committee also examined the websites of premium funding companies to see if they publish financial hardship policies.
The inquiry gave the Committee a valuable overview of the extent to which brokers used premium funding contracts, how they explain them to clients and the processes they have in place for dealing with clients in financial difficulty.
With 95% of subscribers offering this model to clients, mainly through third-party suppliers, the Committee gained significant insight into the role brokers play as both intermediary and advocate in the relationship between client and funder. The Committee noted that brokers are in an ideal position to represent each party when cases of financial difficulty arise.
Around two-thirds of subscribers reported providing training to staff about identifying and responding to clients with financial difficulty, mostly completed ‘on-the-job’ rather than training of a formal specialised nature.
The Committee recommended that training related to premium funding is delivered regularly, is versatile and matches the needs of the brokers involved. It also advised that specific training be implemented to help staff identify financial difficulty triggers, and that this be supported with policies and procedures. It is essential that Code subscribers work proactively with clients to understand their needs.
Recommendations for effective communication include explaining the model; making the third-party arrangement clear; ensuring the client knows the arrangement includes the risk of the insurance policy being cancelled if payments are missed; and, being flexible in how information is delivered.
Other important recommendations in the report address staff awareness of premium funder hardship policies and communicating these to clients; making it easy for clients to access information about financial difficulty; encouraging funders to proactively address financial difficulty; and, brokers familiarising themselves with the Australian Finance Industry Association (AFIA) Insurance Premium Funding Code of Practice (see https://afia.asn.au/AFIA-Insurance-Premium-Funders-Code-of-Practice) when it comes into effect.
While the inquiry found many positives and numerous examples of good practice, the Committee urged subscribers to review and implement the report’s recommendations where appropriate to ensure ongoing improvement in this area.