Lloyd's response to FSA demands commission disclosure and tighter claims control.

Brokers should be forced to disclose commission, according to Lloyd's.

In its response to the FSA's consultation on sales of general insurance products (CP160), Lloyd's said: "We believe there should be mandatory disclosure of commission."

It added: "In our view the paper's proposals about commission disclosure are misconceived. We are strongly against this approach."

The confidential Lloyd's document, leaked to Insurance Times, said: "It is utterly unacceptable that a policyholder should be denied knowledge of the cost of his policy."

The response is in direct conflict with the views of brokers (see page 6) who have campaigned against compulsory commission disclosure.

The response said: "Many of the abuses that take place within insurance intermediation (such as bundling commissions and grossing up) would disappear overnight if there was mandatory disclosure."

Chief among Lloyd's other concerns is the FSA's proposals to deny appointed representatives the right of "binding authority".

If the proposal went ahead, intermediaries would need to seek FSA authorisation. The memo questioned if the FSA would be able to handle the thousands of additional applications for authorisation. It said: "We believe this is a situation the FSA would prefer to avoid."

Lloyd's also hit out at the FSA's proposals for the subscription market. The memo said: "It is unclear from the text of the consultation paper how FSA envisages that the subscription market will operate."

Lloyd's attacked the FSA proposal to force intermediaries to disclose policy details prior to commitment. It said: "We do not believe this would be workable for policies that are placed on a subscription basis. An intermediary would not be in a position to disclose the names of all principals until quite a late stage."

Lloyd's also criticised proposals to classify income protection and critical illness products as high risk requiring "enhanced" regulation and involving sales staff talking special exams. "We are not sure the `enhanced' approach needs to be adopted if the policy term is five years or less."

The response criticised the FSA's proposal not to introduce specific training and competence requirements for claims supervisors. "We stongly disagree with this approach. The administration of claims is an area where major problems can occur," said Lloyd's.

What Lloyd's said about the FSA proposals
On grossing up fees "Abuses would disappear overnight if there was mandatory disclosure."

On training staff "A useful safeguard would be for each supervisor to be qualified."

On claims handling "Administration of claims is an area where major problems can occur and specific training and competency requirements are necessary."

On regulation "We are concerned that the tight timescale will not permit sufficient time for the necessary implementation work."

On plans to review commission disclosure "We feel the FSA should bite this particular bullet as soon as it can."

On product disclosure at renewal "Not practicable to impose the approach for business transacted on a subscription basis."