The charging of “broker” or “policy” fees (section 8(5) fees) in the Short-term industry appears to be a common occurrence. The Regulator frowns upon unjustified fees, and it will be addressed under RDR.
Moonstone’s view is that, in accordance with Section 45 of the Short-term Insurance Act (STIA), together with the regulations, an independent intermediary may not receive any remuneration for rendering services as an intermediary other than regulated commission. Accordingly any person who charges clients fees under Sec 8 (5) will have to indicate:
- What this fee is for;
- that it is reasonably commensurate to the service being provided;
- that it is provided to the policyholder and not the insurer;
- that the activity performed falls outside of the activities for which it is already receiving commission.
It again is worth considering the definition:
“services as intermediary” means any act performed by a person –
- the result of which is that another person will or does or offers to enter into, vary or renew a short-term policy; or
- with a view to –
- maintaining, servicing or otherwise dealing with;
- collecting or accounting for premiums payable under; or
- receiving, submitting or processing claims under a short-term policy;
We remain of the view that it is a very difficult exercise in normal personal lines business to justify such a fee.
We are aware of instances where the Insurance Regulator is currently questioning the charging of such fees by specific FSPs.
The Registrar is of the view that, in many instances, the service is included in the activities provided for in the above definition and accordingly is already being paid by means of commission.
The registrar is also questioning whether it is feasible to charge an ongoing monthly fee for services that may only be provided on a once-off basis or not at all. In other words, policyholders are paying for a service which is potentially available to them, whether or not they make use of it.
Bear in mind that the removal from the act of Section 8(5) is proposed under RDR. It also intends issuing specific requirements for fees to be charged which will include:
- A requirement that it be in writing
- That the service is clearly explained
- That the fee be disclosed
- That the client be in a position to terminate the fee
If you are currently charging such fees, we suggest you carefully evaluate your practice in the light of the above.