Briefing: Bluefin scandal is the tip of the iceberg - brokers should be worried

The poor treatment of one customer in the Bluefin scandal strikes at the heart of the issue facing UK brokers.

The FCA found this particular Bluefin customer could have potentially got a £45,000 cheaper policy, only for the business to land with AXA.

When the FCA asked why the insurer that verbally offered the cheaper deal wasn’t even quoted, or the customer told about it, the placing Bluefin broker said he was in a rush to secure the deal.

The FCA also probed the customer case file, but couldn’t find sufficient documentation explaining the reasons for the placement.

In the wake of the Bluefin scandal and its £4m fine, this is the type of customer the regulator is worried about.

Commission practice under scrutiny

Bluefin was easy to square up because of its AXA ownership, but this type of behaviour is commonplace.

The Bluefin fine means any broker who shifts premium to preferred insurers purely on the basis of higher commission is now in the firing line from the FCA.

This has been a tactic of broking consolidation over the last 15 years, and now that important part of the business model is going to come under pressure.

Let’s be clear: there is nothing wrong with a broker asking an insurer for higher commission. The broker has the right to ask it, and insurer has the right to refuse.

The problem comes when the insurer refuses and the broker actively shifts, or encourages its staff to shift, business to those insurers offering higher commissions

In doing this, they will need to show how the ‘pricing, features and benefits within its preferred facilities’ (using the language of the Bluefin FCA rap sheet) benefits the customer.

Furthermore, all their staff should be trained well on ‘conflicts of interest policy’ and clearly understand the benefits of placing with a preferred facility partner.

Finally, where appropriate, staff must explain benefits to the customer and document their placement reasoning – especially on the bigger ticket premiums.

These are the ’systems and controls’ the FCA wanted from Bluefin and it will expect the same from others. 

The challenge for brokers, especially larger ones and those attempting this as part of their acquisition play, is that this is difficult to achieve.

Does a preferred facility insurer offering higher commissions really have superior ‘pricing, features and benefits’ than those in the local market?

Maybe when it comes to schemes and specialist business, but brokers will struggle to justify it on more general business - just like Bluefin did. 

Brokers must act

The bottom line is that this behaviour is so entrenched it will be difficult to change.

But we’ve had the Bluefin scandal and more brokers are going to come under scrutiny for this type of behaviour in the UK retail space. Meanwhile, the London market FCA probe will root out this activity in that part of the market.

Times really are changing. Brokers can’t say they weren’t warned - they will need to adapt or end up like Bluefin.