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Broker breached duty by not asking client to seek life advice

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A general insurance brokerage breached its duties when the business did not recommend a self-employed client seek advice from a life insurance broker about his coverage needs, according to a dispute ruling.

The Australian Financial Complaints Authority (AFCA) sided with the client, who accused Queensland-based The Insurance Centre, which trades as TIC Insurance Brokers, of failing to act in his best interests when it provided personal advice and arranged for the renewal of his personal accident and sickness policy in 2017.

The client says the broker did not obtain insurance suitable to his needs, did not act with reasonable care, skill and diligence and also misled him about the policy.

He lodged a complaint with AFCA against The Insurance Centre after he made a claim under his policy for serious injuries sustained in a motorcycle accident in February 2018.

The claim was accepted by the insurer, which later informed him the maximum entitlements allowed under the policy had been paid out, triggering the complaint against the broker.

The Insurance Centre disputes the allegations and said that it cannot provide advice about life insurance products.

However AFCA determined The Insurance Centre should have directed the client to seek advice from a life broker since he ran a business offering services as a mobile diesel mechanic and stated he wanted the best cover to protect him and his family because he was the main income provider. He was 29 at that time and married.

AFCA notes that the broker’s statement of advice to the client says the renewed cover is “comprehensive and meets your objectives, financial situation and needs based on the information you have supplied to us”.

But the statement of advice contained no other information or supporting documents to explain what the objectives and needs were. When asked, Insurance Centre said it obtained the information from the complainant’s wife.

“This information was not provided. It is therefore unclear what the complainant’s objectives, financial situation and needs were identified by the broker,” AFCA said. “It is plain that one significant risk is if he suffered a serious physical injury, which he ultimately did.”

AFCA also points out that the statement of advice mentioned many times that a guaranteed renewable policy, which it presumes refers to income protection policies offered by life insurers, usually provides superior ancillary benefits.

Such policies pay disability benefits up to age 65, compared to the maximum two years offered by the personal accident and sickness cover that the client had taken up in 2017.

“Whilst the [statement of advice] did discuss guaranteed renewability, no reference was made about other possible advantages of life insurance,” AFCA said.

“A broker exercising reasonable care and skill should have been aware of these differences.

“Therefore the panel cannot accept a broker acting in the complainant’s best interests, and exercising reasonable care and skill, would recommend [the personal accident and sickness] policy as being suitable to the complainant’s needs.

“At the least, it should have been plain that given his age, his type of work and the fact he is the primary income earner, a policy that limited benefits to two years is much less suitable compared to one that can pay benefits until age 65.”

Since there is insufficient basis to determine the client’s loss, AFCA says the dispute should be settled by engaging an independent life insurance broker to assess the complainant’s circumstances in 2017, the life cover he could afford at that time and what would have been recommended to him.

And if the independent life broker does recommend a policy, the broker is to calculate the likely benefits that would have been payable under this recommended policy from February 3 2020 onwards - the day the personal accident and sickness policy ceased paying benefits.

The cost of engaging a life insurance broker will be paid by The Insurance Centre.

And if the parties can’t agree on what amount of compensation - if any - is to be paid, they can return to AFCA for a decision on this.

Click here for the determination.