‘FAIS legislation should target ill-informed brokers’

- if protection of the public is the true focus JOY ORLEK THE OCTOBER 1 implementation of the Financial Advisory and Intermediary Services Act (FAIS) has come and gone, demanding that any company that offers advice on or collects payment for freight insurance registers as a Financial Services Provider (FSP) or obtains a mandate to offer insurance from an authorised FSP/broker. While the objective of the legislation - protection of the consumer from misinformed and negligent advice - is laudable, questions have been raised in certain marine insurance circles regarding the scope of the Act. Some believe it should not only be targeting the likes of freight forwarders, but more importantly, non-specialist brokers offering marine advice. “There are many composite insurance brokers who may well be registered with the FSB but who are clearly not equipped to dispense marine insurance advice, and often compromise the client through their lack of specialist expertise,” says Durban-based managing director of Eikos Risk Applications, Victor Vaz. “In terms of the Act specialist insurance brokers are required to write a commercial insurance exam, but composite brokers are not expected to be tested on their specialist expertise.” This runs contrary to the objective of the FSB which is the protection of the public from poor advice, in Vaz’s view. “Our view at Eikos is that any broker dispensing marine advice should resource or outsource. If they don’t know enough, they’re being negligent.” Vaz uses the example of a perishable exporter who was misinformed by his broker regarding the availability of delay cover. It is also common for non-marine brokers to confuse open topped with fully enclosed containers and therefore the implications in terms of cover, says Vaz. In both sets of circumstances cargo owners suffered significant financial losses. “What is unacceptable is the fact that in some instances non-specialist brokers knowingly deliver poor advice. In other words, they have access to the required expertise but choose not to access it in fear (short sighted!) of having to share commission. This is tantamount to wilful misconduct!” These examples clearly demonstrate the prudence of the outsourcing option, says Vaz, an option that at least one major broker has chosen to follow, by outsourcing an element of its marine portfolio to Eikos.