Duty of Disclosure: What Insurance Brokers Must Tell Their Clients
Disclosure obligations in an insurance brokerage generally sit in two areas. The first is what the broker needs to tell clients: the services being provided, how the business is paid, and the basis of any advice. The second is what the client needs to tell the insurer: the information needed to accurately assess the risk being covered. Both of these obligations run through every advice conversation. The client's disclosure obligation to the insurer changed materially for consumer insurance contracts in 2021, while ASIC continues to take disclosure failures seriously across financial services. Both can create compliance risk if they are not managed consistently across the business.
What Disclosure Obligations Actually Mean for a Brokerage
In brokerage conversations, "disclosure" can refer to two different areas of obligation.
The first is the broker's own obligation to clients. This covers what the business needs to disclose before giving advice: its services, how it is remunerated, and whether personal or general advice is being provided. These obligations sit in the FSG, the general advice warning and the Statement of Advice, depending on the type of advice being provided and whether the client is a retail client.
The second is the client's obligation to the insurer. This is what clients need to tell the insurer about the risk they want covered before a policy is placed. How this works changed materially in October 2021, and the change applies to consumer insurance contracts but not to commercial policies.
Getting both right requires more than well-prepared documents. It requires advisers to be applying the right approach in every conversation, consistently, even when no formal file review is underway. See also: What Is an AFSL and What Are Your Obligations as a Licence Holder?
What Brokers Need to Disclose to Clients
The Financial Services Guide
FSG disclosure obligation
This generally needs to be with the client before financial services are provided, unless an exemption or time-critical exception applies. It sets out the services on offer, how the business is remunerated, and where clients can go if something goes wrong. Remuneration and relevant benefits should be disclosed in line with the FSG requirements, rather than treated as optional or informal background information.
The general advice warning
General advice disclosure obligation
Required whenever general advice is given verbally to a retail client. Written material can help, but verbal general advice still needs the appropriate warning. In a high call volume team, the practical challenge is confirming that this happens consistently across advisers and client conversations.
The Statement of Advice
Personal advice record-keeping obligation
Generally required when personal advice is given to a retail client. It documents the advice, the reasoning behind it, and any remuneration or conflicts relevant to that specific engagement. Records need to be kept and accessible for at least seven years, and can include call recordings alongside file notes, correspondence and the SOA itself.
Remuneration and conflicts
Ongoing remuneration disclosure
Remuneration must be disclosed in the FSG. Where a specific advice conversation involves a conflict or a benefit not captured in the standing FSG, that also needs to be addressed in the advice documentation.
What Changed in 2021 for Client Disclosure
Before October 2021, the Insurance Contracts Act included a traditional duty of disclosure, although modified rules already applied to some eligible consumer-style contracts. In broad terms, insureds were required to disclose known matters relevant to the insurer's decision to accept the risk and on what terms.
From 5 October 2021, that changed for consumer insurance contracts. Clients taking out insurance obtained wholly or predominantly for personal, domestic or household purposes (home, contents, motor vehicle, travel and similar covers) are no longer subject to the traditional proactive duty. Instead, they need to take reasonable care not to make a misrepresentation to the insurer. The insurer's questions become more central to how the risk is assessed under the updated framework.
Commercial and business policies were not changed in the same way. Clients with business insurance, professional indemnity, commercial property or similar covers generally remain subject to the traditional duty of disclosure under the Insurance Contracts Act, including its statutory limits and exceptions.
For a brokerage advising across both consumer and commercial lines, the practical implication is that the conversation about what a client needs to tell their insurer needs to reflect which type of policy is being discussed. See also: Best Interest Duty for Insurance Brokers: Are You Actually Compliant?
Verbal disclosures need the same record as written ones.
Callyx.ai automatically reviews your team's recorded calls to help confirm whether required disclosures are being made consistently in conversations, not just captured in the paperwork.
Where Disclosure Can Fall Short in Practice
1. The general advice warning in verbal conversations
The obligation to warn a retail client when general advice is being given applies to the conversation, not only to the written summary. In high-volume teams, it can be difficult to confirm consistency across every conversation.
2. Remuneration disclosure gaps over time
An FSG given at the start of a client relationship captures the remuneration picture as it was at that point. As commission structures evolve, or as specific advice conversations involve arrangements not reflected in the original FSG, the disclosure record can fall behind the reality.
3. Client disclosure conversations for consumer versus commercial policies
The shift in how client disclosure works for consumer insurance contracts since October 2021 means that the guidance brokers give clients before placing cover can reasonably differ depending on the policy type. Brokerages that advise across both consumer and commercial lines may benefit from making this distinction explicit in scripts, checklists and training.
4. The verbal record not matching the written record
An SOA records the advice. It does not automatically capture everything that was said in the conversation leading to that advice. Where a disclosure was made verbally but is not reflected in the file, the record does not confirm it happened.
Disclosure risk often sits in the call as well as the paperwork.
Callyx.ai reviews recorded calls to check whether verbal disclosures are being made consistently, so the verbal record is easier to review alongside the file.
Book a DemoWhat the ASIC Enforcement Record Shows
Avanteos Investments — $1.7 million penalty (2022)
Penalised after being found to have distributed defective disclosure statements. The case was the first criminal prosecution under the provision making it an offence to not take reasonable steps to ensure a defective disclosure document is not distributed.
Lasarith Financial Advice — AFSL cancellation (2022)
ASIC accepted a court enforceable undertaking after identifying failures to provide Statements of Advice to clients on at least 24 occasions. The outcome included the firm undertaking to cancel its AFSL and cease operating as a financial services business.
Defective disclosure now subject to civil penalties
ASIC's fines and penalties guidance confirms defective disclosure is now subject to civil penalties. The maximum penalty for an individual is $1.65 million. For corporations, the maximum is higher depending on the benefit obtained or detriment avoided. Consequences can extend beyond a fine to licence cancellation and ongoing supervisory obligations.
How Call Monitoring Creates a Documented Disclosure Trail
For many brokerages, a significant part of advice and client service is delivered by phone. That can make the call recording one of the clearest records available of whether a disclosure happened in practice.
A well-maintained FSG and a strong SOA template are necessary. A supervisory process that confirms those documents are being applied consistently in every verbal conversation adds something the documents alone cannot provide: evidence of what actually happened in each call, not just what the process says should happen.
Callyx.ai reviews 100% of recorded calls automatically, flagging conversations where required disclosures may be missing or where the call and the file record do not appear to match. The result is a disclosure record that reflects the operational reality across the whole team, not just what a review of written documents would suggest.
Summary
Disclosure obligations in an insurance brokerage generally sit in two areas: what the broker tells the client about the services and remuneration involved, and what the client tells the insurer about the risk being covered.
The client-to-insurer obligation changed materially for consumer insurance contracts in 2021. Broker disclosure obligations remain separate, but both areas can create compliance risk when they are not managed consistently. In both areas, a significant part of the compliance risk can sit in the verbal advice conversation as well as the written documents.
A monitoring process that reviews recorded calls can give a brokerage a more complete picture of whether disclosures are happening consistently across advisers.
What Changed in 2021: Insurance Disclosure Before and After
| Requirement | Before 5 Oct 2021 | After 5 Oct 2021 | What it means operationally |
|---|---|---|---|
| Client's obligation for consumer insurance contracts (home, contents, motor, travel) | Generally required to disclose known matters relevant to the insurer's decision to accept the risk and on what terms, subject to the rules that applied at the time | Must take reasonable care not to make a misrepresentation to the insurer. The insurer's questions become more central to how the risk is assessed. | The broker conversation should focus on helping clients understand and accurately answer the insurer's questions, and on clarifying anything that may affect the risk. |
| Client's obligation for commercial and business policies | Must disclose known matters relevant to the insurer's decision to accept the risk and on what terms, subject to the statutory exceptions | Unchanged: generally remains subject to the traditional duty of disclosure under the Insurance Contracts Act | No change for commercial clients, though statutory limits and exceptions still apply. Brokers still need to guide commercial clients through the disclosure process before cover is placed. |
| Insurer's position if client misrepresents (consumer contracts) | Could avoid the contract for non-disclosure, including inadvertent failures | Must consider whether the client took reasonable care. Remedy may be proportional rather than full avoidance. | More nuanced outcomes possible for consumer insurance claims. The broker's record of the disclosure conversation becomes more relevant if a claim is disputed. |
| Which policies are covered by the consumer framework | Some consumer-style products were treated as eligible contracts under the previous framework | A contract is presumed to be a consumer insurance contract if alleged, unless proved otherwise | More policies now fall into the consumer insurance category by default. When a policy type is unclear, the updated framework applies unless the insurer proves otherwise. |
| Broker remuneration disclosure to clients | Required in FSG before financial services are provided | Unchanged: still required in FSG | No change here. Remuneration must be disclosed in the FSG regardless of the 2021 amendment to client disclosure. |
Frequently Asked Questions
About the Author
Vincent Keogh
Vincent is an operations specialist on the Callyx.ai team, writing for compliance managers and principals on how to get maximum value from recorded calls: across compliance, staff training, and business performance.
Primary Sources
- Insurance Contracts Act 1984 (Cth)
- Corporations Act 2001 (Cth)
- ASIC Regulatory Guide 175: AFS Licensing — Financial product advisers — Conduct and disclosure (November 2024)
- ASIC: Obligations when giving financial advice
- ASIC: Avanteos Investments penalised $1.7 million for defective disclosure statements (2022)
- ASIC: Court enforceable undertakings — Lasarith Financial Advice (2022)
- ASIC: Fines and penalties
- ASIC Annual Reports
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This article provides general information about disclosure obligations for insurance brokers and is not legal advice. Regulatory requirements change. Seek qualified legal or compliance advice for guidance specific to your business and circumstances.
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