Just as the industry seems to be settling down from the introduction of the Financial Services Autho...
Just as the industry seems to be settling down from the introduction of the Financial Services Authority regime there is another menace on the horizon. I refer to the issue of remuneration and its disclosure (or the lack of it).
While the convention that brokers receive their remuneration from underwriters may have never sat well with the law of agency, it works pretty well in practice - especially when brokers do more for underwriters than simply introduce business. However, there are powerful lobbyists demanding mandatory disclosure of commissions.
Taking a quick look at two members of the disclosure camp, the first group is the Association of Insurance and Risk Managers, which probably has the greatest legitimacy of all in calling for disclosure based on the fact that it represents the clients. But doesn't negotiation on fees or commissions already go on? I can't think of any firm large enough to have its own risk manager which doesn't already negotiate a fee with its broker. Anyway, most of those brokers involved with the Airmic fall neatly into the next category.
The second group comprises a number of the larger brokers that have been caught up in the Spitzer issue, which in a knee-jerk reaction announced that they were stopping all contingent commissions as a result. Having been accused of having their "hands in the till", they are now boasting of how they have cut off their hand so the accusation cannot be levelled again. In addition, by lecturing the rest of us on how we should manage our own conflicts of interest they imply that the rest of the broking industry is similar to them.
Of the above, only the Airmic position has any logic but disclosure is already happening for them, so it doesn't need legislating for. Neither does the mandatory disclosure argument carry forward to consumer products - especially if direct insurers do not need to disclose the cost of the additional activities that they perform for themselves, or any additional profits they make.
So if brokers want to debate commission disclosure, then let's make it an honest and open one without various organisations spinning a position as being benevolent to consumers when, in reality, they are concerned more with the pursuit of their own self-interest.
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