Concerns about commission enhancements must be taken seriously, says David Blackman
The tensions between London market brokers and insurers over commission increases are clearly growing.
Lloyd’s performance director Tom Bolt has written to managing agent CEOs warning them about the pitfalls of paying for extra services.
These concerns are amplified in advice issued by the London Market Association (LMA), reported exclusively today on insurancetimes.co.uk, warning its underwriter members that they must be careful not to fall foul of the Bribery Act and FSA rules when entering into such arrangements.
The push by brokers to increase commissions is taking place against a backdrop of stagnating rate levels, the most recent evidence of which is today’s report by Marsh confirming that even the multiple disasters of early 2011 have had little impact on rates
Choppy waters ahead
Hardly surprising then that big brokers like Aon, with its so called ‘carrier charge’- a 3.5% top up to its normal commission – are looking for extra sources of income. However the advice, prepared for the LMA by City law firm Reynolds Porter Chamberlain, indicates the choppy waters that brokers could be entering if they go down such a route.
It warns brokers and insurers that both may fall foul of FSA rules if the former has been swayed by additional fees. It also flags up concerns over the implications of the Bribery Act, which is due to come into force in just under two months, for such arrangements.
Some may dismiss Bolt’s letter and the LMA advice as sabre rattling by those who don’t want to give brokers a bigger slice of a pie.
And no other broker can rival Aon’s sway in the market, making it hard to see how they could they could introduce similar top up arrangements.
However, even going down this route takes brokers and insurers into tricky conflict of interest territory vis-à-vis customers. Bolt’s concerns about safeguarding the reputation of the London market have to be taken seriously.
