Brokers fear disclosure, says IIB

The Institute of Insurance Brokers (IIB) says it has received feedback from many troubled members in connection with the FSA Discussion Paper - Transparency disclosure and conflicts of interest in the commercial insurance market.

Ann Peel, head of technical services at the IIB, said: "The feedback we have already received demonstrates a genuine fear amongst brokers that mandatory commission disclosure could lead to the demise of the smaller independent intermediary sector."

"Conceding that there is a need for customers to have clear information about the nature and extent of the service brokers provide, she points out that mandatory disclosure of earnings could mislead customers rather than assist them.

“It is impossible for accurate comparisons to be made between the services different brokers provide. There are huge variations in the extent of administrative work they undertake, in their risk placing and risk management capability and in terms of their technical and specialist knowledge. In weighing up brokers’ service provision against remuneration, customers would also need to take into account how their ongoing needs are to be catered for"

“At the point of sale it will always be difficult for small to medium sized commercial customers with limited time and resources to properly evaluate the value of a broker’s services.”

She added: “The FSA needs to understand that it is the insurers and product providers who pay commission not the customers. Feedback suggests there are plenty of instances where brokers might earn higher than average rates of commission but the total cost of the insurance to the customer is highly competitive. Enhanced remuneration arrangements for intermediaries rarely translate into higher overall costs to the customer.”

One broker respone to the IIB said: “If a client is not happy for whatever reason then it is very easy for them to ask other firms to submit quotations, at no additional cost. It is an extremely competitive marketplace.” He went on to say that the ‘upon request’ method of commission disclosure is a fair and reasonable option open to any client who is curious about his broker’s income.

Barbara Bradshaw, IIB’s chief executive, said: “IIB is set to meet FSA officials face-to-face to make sure the relevant arguments against mandatory disclosure are put forward. We will naturally include the feedback we receive from members, but it is essential that brokers let the FSA know their views directly, as well as via IIB.”

“It is not a matter of doubting the Regulator’s good intentions, simply of making sure that it is made aware that this is an issue of critical importance to the insurance intermediary sector."