Trade bodies, insurers and brokers respond to the latest discussion paper on regulation.

After years of talking about, the FSA has finally published a discussion paper outlining plans for further regulation of the intermediary market.

The regulator is considering making commission disclosure mandatory as it is worried that there is a lack of transparency in the commercial market.

It is also concerned at the number of acquisitions and the blurring of the lines between insurers and brokers through insurers buying stakes in brokers, and through such arrangements as MGAs. It believes these developments could lead to conflicts of interest, and regards mandatory commission disclosure and the increased transparency it would demand as a means of mitigating this.

The FSA has highlighted six outcomes it wants to see, and proposes three alternative models to reach them:

• More rigorous supervision and enforcement of the existing rules and principles. This would result in a more hand-on approach, with the FSA providing guidance on what it requires under the current regime. It would also require more targeted supervision of firms and additional requirements to provide information to the FSA about remuneration arrangements and business models that could lead to conflicts of interest, and how they are being dealt with. This is an option because the FSA fears the current rules are not being complied with.

• An enhanced version of the current regime, whereby brokers would continue to disclose their commission to customers who ask for it. Under this option, the information provided on request would include details of contingent commissions and any deals the broker had in place with insurers, for example, a tied agency. It would also have to be presented in a standardised format so that customers could use it to make comparisons across the market.

• Forced commission disclosure, whereby brokers would have to tell all customers how much commission they were making, including contingent commissions, and about any relationships they had with insurers.

This disclosure would happen automatically, and could be verbal rather than written. The FSA would hope that the transparency would put a stop to any potential conflicts of interest caused by business arrangements between brokers and insurers.

The market has until 25 June to respond to the consultation. Insurance Times asked some key players what they would be saying.

Trade bodies


We are somewhat surprised that the FSA is looking again at this issue. Only last December the FSA published research which concluded that the costs of mandatory commission disclosure exceed the benefits. There is little evidence that this is a priority issue for commercial customers. Furthermore, if there are isolated problems with conflicts of interest in parts of the market, the FSA does have powers to take action. So we are not clear why the FSA perceives a possible need for more rules.

However, the ABI will consult with our members on the recently published discussion paper and we will respond to the FSA in due course.


Let’s go round again! So like a dog with a bone, the FSA has decided to carry on its investigation into the commercial insurance sector with the release of discussion paper DP08/2. The paper includes in its title transparency, disclosure and conflicts of interest and so, clearly, the FSA is now widening its horizons following the somewhat narrower scope of last year’s forensic review.

The paper sets out six outcomes that the regulator is focusing on in achieving its overarching objectives – a more efficient and competitive market. Many intermediaries, I am sure, will argue that the UK commercial insurance market is very competitive and that intervention is not necessary, but firms do need to consider the six outcomes in any formal reply they submit to the FSA.

These outcomes contain a mixture of the old and the new, adding weight to the belief that the discussion paper is widening the scope of the debate. They include disclosure of the total commission paid to intermediaries throughout the chain, clear information about the intermediary’s services and the breadth of search undertaken, the capacity in which the intermediary is acting and the standardisation of the disclosure information.

Steve White, head of compliance and training, Biba


There can be no serious argument about the principle of full and automatic disclosure of the commissions brokers receive from their clients’ money. As the insurance buyers’ association, Airmic strongly supports the FSA’s efforts to promote full transparency.

We welcome especially the priority given to clarity and openness about the capacity in which the broker is operating, whether as agent for the insurer or the buyer.

The only real question is whether it is practical to enforce disclosure or whether a market-driven solution would be preferable. Surveys show that big companies with professional insurance buyers generally get the necessary information, but many SMEs do not. This has to be cause for concern.

The FSA backed away from mandatory disclosure last year after concluding that the implementation costs would outweigh the benefits. It promised, however, to return to the subject, which it is now doing.

Of the three options it is considering, the second appears to be the most attractive: “An enhanced regime to improve quality of disclosure of commission (on request by the customer), services and status.” This would require a real effort by the market to make it work. If that failed, then a mandatory solution would become almost inevitable.



Zurich worked closely with Charles River Associates International when it was putting its market failure and cost benefit analyses (on commission disclosure for the FSA) together.At this stage, the FSA has decided to look for an industry-led solution which fits well with its regime of more principles-based regulation. Zurich will be feeding into the consultation process and trusts the FSA’s work around transparency will be carried out in a similar fashion to that we experienced with contract certainty.

David Smith, managing director, broker, Zurich


The FSA is right to have concerns about the lack of transparency, conflicts of interest and disclosure in the commercial market. The activities of the least professional insurance firms influence disproportionably the reputation of the industry as a whole. A strong principles-based disclosure framework, that has our customers’ interests at its core, will help improve this reputation and put an end to resource-sapping speculation.

If we want to provide a professional service customers value, we must treat our customers with honesty and respect and total transparency. Lawyers, accountants and even IFAs operate on this basis. The FSA and the industry should stop dithering. Hiscox fully supports mandatory commission disclosure for both commercial and personal lines business, anything less is a fudge.

Bronek Masojada, chief executive, Hiscox.

Norwich Union

Norwich Union (NU) is not in favour of mandatory commission disclosure. While we agree that the regulatory framework should promote transparency for customers, we believe that measures are already in place through the relevant ICOB rules and Treating Customers Fairly principle.

In an environment where there is a challenge to simplify the point of sale documentation to make it easier for customers to understand and reduce unnecessary paperwork, the addition of extra information that has not been requested by the customer will simply create more ‘noise’.

NU believes that the FSA’s drive for mandatory commission disclosure is at ‘

‘ odds with its move to a risk-based regime and we welcome (former FSA chief executive) John Tiner’s comment that “only if both the market failure analysis and cost-benefit analysis tests are met and the market has still not come forward with any industry-led solutions, will we consider whether regulatory intervention is the best way forward”.


We have seen a rise in commission levels and various other payments, such as marketing costs, work transfers and account fees – emerge in recent times, so full disclosure of all commission and earnings would be beneficial. It would result in greater transparency for commercial brokers and end customers and provide a stronger platform for a level playing field.

We believe additional intervention by the FSA should be unnecessary but the third option – forced commission disclosure – seems the most workable. I am not sure that without this much will change. Full disclosure sends a positive message to those purchasing commercial insurance.

The greater clarity should mitigate any questions surrounding conflicts of interest and what business arrangements are in place.

Chris Hanks, general manager, Allianz Commercial.



With its recent consultation document the FSA is clearly encouraging the insurance market to consider all aspects of transparency and disclosure-critical issues for the insurance broking industry. Clients are looking for their brokers to be fully accountable and to provide more wide-ranging services.

As the rest of the financial services sector is embracing enhanced transparency, it is naive for brokers to assume they will not be required to follow suit. Marsh’s position has been clear for some time. We have led the market in the adoption of transparency standards around placement and broker remuneration.

We also believe that brokers, like any other service provider, should be compensated for the full value they deliver, not least so that they can continue to invest in talent and infrastructure.

We welcome the FSA’s decision to open the debate on transparency and commission disclosure and look forward to participating in the debate.

Hoare & Company

It’s like this. I’m a consumer. I buy retail products. Do I care about the retailer’s profit margin ? No I don’t. It’s either a good deal, or it’s not. I either like the price or I don’t. The FSA “prides itself on being the best financial watchdog in Europe”. Two words, Northern Rock. Tell it to put its own house in order first.

James Dennison, account manager, Peter Hoare & Company (Insurance Brokers).

Harry Fort

Only once in the past 22 years has a commercial client ever asked me how much commission we earn. This was a shop (big) client and my answer was “not as much as you”. That kept him happy but no doubt the Gestapo would go mad. The most consistent comment we get from clients – and it will be many times a week – is, why do you send me so much paperwork. The answer is because the Gestapo think you want it.

Chris Fort, director, Harry Fort Insurance Brokers