RIBO publishes new broker disclosure rules

The Registered Insurance Brokers of Ontario (RIBO) has just published its new regulations on broker disclosure.
RIBO, the self-regulatory body for general insurance brokers, is responding to controversy begun in the U.S. over the level of disclosure related to broker commissions, specifically contingent commissions.
In its rules on “conflict of interest”, RIBO says brokers must disclose in writing to a client or prospective client any potential conflict of interest. This replaces old rules on “related party disclosure”, and applies to any business relationship, direct or indirect, relevant to the transaction (be that a recommendation, quote or policy sale).
“The interest must be sufficient to raise the perception of “influence” over the broker’s “independent” decision making process, in the mind of a reasonable person, in possession of all the facts,” the RIBO bulletin notes. “In other words, the influence must be “material” enough that a reasonable person would believe that a consumer could not make an “informed” decision without that knowledge.”
Relationships which would qualify include any ownership relationship between a broker and insurer or a holding company, or any kind of loan/credit facility or other financial relationship between a broker and insurer. But it may also include a contract with an insurer by which a broker places all or most of its business with that carrier, or even a broker facing limited market capacity who cannot offer real choice to the consumer. And it would include any volume or mix of business requirements for example if an insurer required a broker to submit one homeowners’ application for every auto application submitted.
The bulletin also specifically cites contingent commissions it does not say that such commissions are in essence wrong, but that they must be disclosed. “While payment of contingent commission from an insurance company may depend on profitability (loss ratio) of that broker’s total book of business with that insurer (and not on individual policies), or volume or growth targets in other cases, and the receipt of this commission by the broker is not guaranteed, the possibility that the broker may receive this commission in future ought to be disclosed, in order to achieve full and overt transparency in the transaction.” Any other sales incentives, for example trips or other rewards for achieving sales targets with a given insurer, should also be disclosed, RIBO adds.