Insurance Broking, a profession or occupation?
For many years, insurance brokers have considered themselves ‘professionals’ despite no such recognition from other professions. Interestingly, the Financial Services Board (FSB) clearly agrees with the view of brokers.
Although the industry was never directly informed, the decision by the FSB to transform insurance broking from an occupation to a profession was taken back in 2004, with the triggering of the FAIS Act being the first step. Now, 13 years later, transition is almost complete although full transition will only take effect when the Conduct of Financial Institutions Act (CoFI) has been passed into law, probably in 2019.
There are several key differences between a profession and an occupation. Undoubtedly the greatest difference is the level of education, training and ongoing competence requirement. An occupation is learned ‘on the job’ and needs little, if any, prescriptive educational requirement although a specific employer may well demand some form of qualification as a company policy. On the other hand, a profession is usually governed by a code of conduct and is regulated by a particular or professional body statute. Moreover, a professional’s income is generally determined according to his knowledge and expertise rather than for what he produces; and the fact that professionals can be sued for wrongful advice must also be a contributing factor.
Prior to 2004, an insurance broker needed no qualifications whatsoever, and obtaining an agency contract with an insurer was simple. Moreover, very few brokers charged fees for services; most relying on commissions paid by insurers for ‘selling’ their policies. There can therefore be no doubt that prior to FAIS, insurance broking was an occupation no matter how many brokers struggled with that label.
But in 2004 the FAIS Act forced brokers to undergo compulsory qualifications, albeit with a five-year lenient transition for ‘grandfathers’, and a few years later the Regulator extended this to include compulsory regulatory examinations (Board Exams). Continuing professional development (CPD) measured in hours will soon be added and with the imminent imposition of the first of three phases of the Retail Distribution Review (RDR), it will not be long before insurance brokers will be charging fees for their expertise just as every other professional.
However, according to a number of publications and opinions from brokers, the charging of fees for the provision of professional services will create challenges, simply because policyholders have never been charged in the past. While this has proved true in countries that have introduced similar regulation, it has only been significant in respect of personal lines insurance.
Nevertheless, it is likely that the FSB will continue allowing the ongoing payment of commission in addition to fees charged to policyholders although commission will probably be capped at a lower level.
The problem is that the payment of commissions for ‘selling’ is an occupational characteristic. This means that when charging an advice fee to a client and at the same time receiving commission for placing the business with an insurer, the insurance broker is acting in both a profession and an occupation. Which means that there is no real answer to the question “Is insurance broking a profession or occupation”? It depends entirely on the activity of the broker at any particular time.
It is, however, safe to say that a successful broker receives a high level of respect and recognition from policyholders and indeed society as a whole and will continue to do so whether deemed to be following a profession or an occupation.
Here in South Africa our insurance brokers are truly resilient and entrepreneurial. They will survive and prosper whatever the label.