LMA warns on broker remuneration

The Lloyd’s Market Association (LMA) has taken legal advice over broker remuneration and is now warning underwriters, some of which are under pressure to meet commision increases from London market brokers, that they must be careful not to fall foul of the Bribery Act and FSA rules.

The warning is the latest development in a battle between Lloyd’s insurers and brokers, with underwriters understood to be fiercely resisting some of the potential commission increases.

Leading the concerns is the Aon Carrier Charge (ACC), which is effectively a 3.5% charge for administrative services on top of the normal commission agreed.

In recent months, Willis, JLT and Lockton have all put forward their own varying commision structures on certain classes, which could result in some underwriters having to pay more commission.

Aon says ACC is merely standardising a fragmented routine pratice, but many underwriters say the charge will cost them heavily and eat into profit margins.

The LMA is taking legal advice from law firm Reynolds Porter Chamberlain, and will circulate the full advice in early May.

A summary of the advice includes:

• That if a broker gives preference to an insurer because of additonal fees, both parties may fall foul of FSA rules.

• FSA rules require detailed requirements relating to outsourcing, defined as customised services to an insurer. The outsource agreement is only genuine if it can be defined as one and audited.

• The Bribery Act warns that any payments which induce a person to act impartially can be considered a bribe.

Some of the advice, especially around outsource agreements, is expected to resonate with underwriters, who have traditionally paid for extra services supplied by brokers.

The legal advice comes on top of a letter from Lloyd's director of franchise performance Tom Bolt, sent to managing agents this month, which again warns about paying for extra services.

The letter says: “Lloyd’s believes that such insurer charges can carry signifcant regulatory risks for manging agents and for the reputation of the Lloyd’s market.

“Accordingly, it is essential that every managing agent deals with these charges with the utmost care and in particular, in accordance to Financial Services Authority outsourcing rules and the Bribery Act 2010, which comes shortly into force.”