Regulator warns of ‘blurring of distinction between brokers and insurers‘
The FSA will probe the industry’s major insurers and brokers amid concerns over their management of conflicts of interest.
In his first swipe at the insurance market since taking the helm at the FSA, chief executive Hector Sants said the regulator was concerned about the recent trend towards insurers buying brokers and moves by brokers to do additional work on behalf of insurers.
Sants said: “The increased blurring of the distinction between insurers and intermediaries increases the need for conflicts of interest to be managed.
“We believe the effective management of conflicts of interest has never been more crucial.”
The FSA will begin a programme of work next year to examine conflicts of interest and how they are managed.
Sants’ comments came as the FSA announced it would delay making a decision on whether to mandate commission disclosure in the commercial insurance market.
This followed a review by consultancy firm CRA which found that the cost of forced disclosure would outweigh the benefits.
The FSA said there were still inefficiencies in the market and it would begin a programme of work to tackle this, before making a decision on forced disclosure.
Conflicts of interest were highlighted as one area of inefficiency.
A spokesman for the FSA said: “We have noted a growing trend towards vertical integration and workshare agreements.
“There are elements in the chain between insurance firms becoming more integrated that will be looked at.”
“We are looking for clarity about who is earning what and how they are working on behalf of each other.”
Recent months have seen insurers, such as AXA, acquiring commercial brokers or taking stakes in them.
Stuart Reid, joint chief executive of Venture Preference, AXA’s broking division, rejected concerns about conflict of interest. He said it was AXA UK that was buying brokers, not AXA Insurance.
He said: “There is a demarcation between broker and insurer. We are treating customers fairly. There are conflicts of interest but these are being appropriately managed. This is not an issue.”
He suggested that the FSA was more likely to be concerned with insurers giving capacity to brokers.
Towergate chief executive Andy Homer said he could not see what the FSA was concerned about.
He said insurers that bought stakes in brokers were taking great care to keep them as separate entities.
He said Towergate kept its retail and underwriting divisions “I am not sure where the FSA is going with this,” he said.
