Guidance on Letters of Authority and Appointment

The National Insurance Broker’s Association (NIBA) has always referred to the templates of the two widely-used documents in the industry – the Letter of Authority and Letter of Appointment, both readily available on the NIBA website. According to the association, these guidance materials serve to preserve the minimum industry standard and help stamp out the confusion and misuse of both letters.

The letters of Authority and Appointment both ensure that brokers may legally act on their client’s behalf. As outlined on their website, the letters must adopt the following formatting requirements:

• be produced on client letterhead
• contain the relevant template wording
• be signed by an authorised person in the client’s business
• contain a valid date to assure currency

What is the difference between the two letters?

Despite the similarity, there are two circumstances in confirming the consent of the client to seek information and obtain insurance using a broker. This is where both letters serve different purposes. The Letter of Authority is an instruction to make enquiries, while the Letter of Appointment is transferring the business from one broker to another. If a client wishes for a broker to review a cover and provide a quote, they may refer to the Letter of Authority. If a client decides to appoint a broker to act on their behalf, they may use the Letter of Appointment.

Letter of Authority

Also referred to as Letter of Authority to Review and Quote (LARQ), this document gives authority to an insurance broker to obtain information from other insurers on behalf of the insured. The main purpose of this is to review and quote the insured’s insurances, which are being held by another broker. It is most useful in instances where the policyholder is experiencing a difficult claim and would want an alternative quote.

The LARQ makes the insured’s instructions clear and transparent to avoid misrepresentation and protect privacy. It is signed by the insured or his appointed authority, but the broker is not allowed to receive fees or commissions for their service at this early stage of a possible new broker-client relationship.

Letter of Appointment

The Letter of Appointment (LOA) appoints a broker to manage an insured’s insurance going forward. It may be for just a few specified insurance policies or all policies, effectively removing the previously appointed broker from the policies. At this point, the new broker can already receive fees and commissions for their services as set by the Australian Financial Services (AFS) licensing requirements through the Australian Securities & Investments Commission (ASIC). The LOA clearly states the insured’s intent to have another broker take over the exiting business, including credit control and claims maintenance.

What is the recommended process?

NIBA has provided an outline of the recommended process starting with the LARQ to LOA. It involves the steps stated below:

• The client requests the broker to review insurance needs, the broker – Provides FSG if required. Obtains signed LARQ
• The broker submits LARQ to holding or to the previous underwriter(s) to obtain information
• Quotation/submission accepted by the client
• The client signs the LOA including the Terms of Engagement
• The broker submits the LOA if requested by the insurer

Conclusion

The guidance materials on the NIBA website are of general guidance only and are not compulsory. However, they are highly encouraged to be used as a starting point to meet the minimum industry standards. It is also advised to make the appropriate amendments to the letters that account for the client’s relevant circumstances.

If you are looking for an insurance adviser to manage and advise on your business’s insurance policies, you may appoint Optimum Insurance Services. We will assist you with your overall business insurance needs from quotes, through to policy issuance, ongoing advice, and claims support when you need it most.

About Optimum Insurance

Optimum Insurance Services are insurance advisers dedicated to providing expert and tailored opinions, risk/need analysis, comprehensive insurance options, and top-notch service for all kinds of businesses from quote to claim. If you are interested in learning more about what we can do for you, let’s get in touch.