Note: Reference for my summary of broker’s duties: Sutton on Insurance Law, Enright, Merkin & Hawke, 5th Ed Lawbook Co 2025, at page 323.
Section 11 Insurance Contracts Act defines “insurance broker” as a person who carries on the business of arranging contracts of insurance, whether in Australia or elsewhere, as agent for intending insureds.
A broker holding an AFS Licence has general obligations as a financial service licensee. A NIBA member has obligations under the Insurance Brokers Code of Practice.
- a general insurance broker who is a licensee or authorised representative of a licensee must provide the financial services efficiently, honestly and fairly. Financial services includes providing financial product advice and dealing in general insurance products on behalf of a client.
- the NIBA Code requires brokers to be competent through relevant qualifications, continued education and training; act honestly and with integrity in all dealings; and communicate with clients and prospective clients in a clear and timely manner.
Who is my client?
A broker must determine:
- whether the client is a Retail client or wholesale client for the purposes of disclosures and warnings);
- if a retail client, whether personal advice or general advice will or will likely be provided, to meet obligations for consent for commissions, modified best interest duty and Statement of Advice for personal accident or a General Advice warning;
- whether the contract is, or is deemed by an insurer as, a consumer insurance contract for the purposes of determining whether the duty to take reasonable care not to make a misrepresentation or the duty of disclosure applies.
At common law a broker has concurrent duties to a client under contract and in tort.
A broker has a duty to ‘[use] reasonable skill and care in and about obtaining insurance on the client’s behalf‘ (JW Bollom & Co Ltd v Byas Mosley & Co)
The expected standards of brokers were summarised in Infinity Reliance Ltd v Heath Crawford Ltd:
- to perform the agreed services properly, a broker should take reasonable steps to understand the client’s business, and its insurance needs (note the best interest modified duty when providing personal advice to Retail clients under the Corps Act);
- the broker should aim (reasonably) to match as precisely as possible the risk exposures which have been identified with coverage available;
- how far the broker, instructed to place specific insurance, is obliged to assess the client’s needs beyond that particular instruction is a case-specific question;
- to enable the client to take an informed decision, the broker must take reasonable steps to ensure that the client understands the key terms of the cover that is being obtained;
- where the market offers a variety of different terms which might meet the client’s needs, the reasonable broker will take care to explain the range of available cover and the advantages and disadvantages of each. That way, the client can make an informed choice;
- the broker should take reasonable steps to enable the client to understand the key aspects of the placement process, for example the information that underwriters will require or that the insured should provide.
Inquiries, proposal forms and disclosure
The broker has a duty to inquire of the insured for disclosure purposes however note that in respect of consumer insurance contracts an insured is only required to honestly and accurately respond to the questions asked by the underwriter.
A broker who is instructed to complete a proposal form on the basis of the broker’s awareness of background information must take reasonable care that the answers based on that information are correct. Generally brokers will avoid this practice.
Failure to obtain cover
A broker who is unable to obtain or effect appropriate insurance must report the failure promptly and seek further instructions.
Payments
The payment of premium from an intending insured or an insured to a broker discharges the insured’s obligation to pay the premium to the insurer.
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