Big Question: Should the FCA scrap broking commissions in favour of a fee based system?

Charles Manchester, MGAA chairman

A fee-based system is transparent so everyone knows what they’re paying and to whom; broker conflicts of interest are less likely.

But is the playing field level in relation to the different (and not always lower) distribution costs of direct insurers and insurers operating through agents or MGAs?

Independent financial advice is almost non-existent for lower net worth consumers of investment products, largely because of the cost of the advice in a fee-based system. Is that good? I can see both sides but, on balance, think the current system works pretty well. So why change it?

Ruth Robinson, broker manager for Markerstudy

The UK General insurance distribution landscape is complex and mature and a myriad of commercial models exists across personal and commercial lines.

Yes, the industry should continue to strive toward delivering a more balanced pricing template to the benefit of customers. And credible industry initiatives are underway to support commission transparency and fairer renewal prices.

However, whether or not customers are best served by a commission or fee based system, given this distribution complexity, is a debate without a clear answer. No doubt there will be distribution winners and losers under a fee based system.

But a prescriptive change to fees does not guarantee sustainable improvement on price, service quality or choice for all customers.

Peter Blanc, chief executive of Aston Lark

Commission as a model for low-value transactions makes perfect sense.

Time and again, small businesses have been asked about broker remuneration and the response is always the same - they’re concerned with the total price they are being asked to pay for their insurances and not in the least concerned with who’s earning what in the value chain.

The alternative of an entirely fee based remuneration system creates all sorts of undesirable consequences, such as;

1. The smallest clients will no longer receive advice - exactly what has happened in the Independent Financial Advisor world; most households no longer receive financial advice as they can’t afford the fees. Is this what we want to happen with general insurance? Underinsurance is already a major problem and this proposal would just exacerbate it by ensuring that the most vulnerable would no longer be advised.

2. Clients will have to pay for claims advocacy and every additional service will come with a fee invoice - not what most clients want.

3. Service levels will ultimately drop - as brokers will compete on fees in a race to the bottom.

We have to ask ourselves the question - “what problem are we trying to solve”? Larger clients already pay on a fee in lieu of commission basis, driven in part by the increases in IPT. Switching to fees at the SME end of the market will add complexity and/or reduce service levels; neither of which is in the best interests of clients.

With Brexit, digital disruption, GDPR, SMCR and IDD I think the broker market has quite enough on its’ plate right now without embarking on a crusade to turn a centuries-old model upside down.

Nick Hobbs, director of broker markets at Allianz UK

Brokers take a commission for their expertise and advice, their wide-market view, the distribution role they perform for insurers and money handling… and It’s a valuable service.

In my experience brokers could improve the way they explain the breadth of their role to their customers and be more overt about what they are earning and why.

If commissions were replaced by fees universally many brokers would probably still need to be better at it than can be the case at present.

Any mature profession, faced with other industries transparently explaining their fees and being confident in doing so, should respond to that by doing the same.

That’s just sensible professional practice so the need for imposition becomes unnecessary.

Phil Bayles, managing director, intermediaries at Aviva

I don’t believe the FCA should replace commission with a fee-based system but I think they should encourage full transparency to the customer of commissions and fees received.

The current system of this information being offered ‘on request’ isn’t widely taken up by customers whereas if it had to be disclosed it would drive a more competitive market for them.