Competition Commission will look at brokers' commission

Brokers' commissions will continue to be the focus of intense scrutiny by the European Union's Competition Commission, it revealed this week.

In a move that will evoke comparisons with New York attorney general Eliot Spitzer's investigations, the Commission expressed concern about the continuing use of contingent commissions and the lack of transparency in broker remuneration, particularly in the UK.

In a report published this week, following its sector inquiry into anti-competitive practices, the Commission said: "The results of the inquiry confirm that contingent commission agreements were widespread in many member states. Some intermediaries have derived considerable revenues from contingent commissions, highlighting the potential for conflicts of interest."

The Commission's intention to further examine the "overall lack of transparency of intermediaries' remuneration", which it claimed reduced the potential for price competition in relation to mediation services, has been welcomed in some quarters of the broking community.

Marsh, which changed its policy concerning contingent commissions following Elliot Spitzer's investigation into bid-rigging in 2004 and 2005, said: "What this report makes plain is that insurance intermediaries should be putting clients at the core of everything they do."

The FSA is currently considering issues surrounding transparency of remuneration and in particular the management of potential conflicts of interest and is conducting a cost benefit analysis about the benefits of implementing specific regulation.

Eric Galbraith, chief executive of Biba, claimed the UK intermediary sector had, over the last 12 -15 months, already addressed the issues, adding: "There is an ongoing forensic review of this issue by the FSA and whilst we appreciate that the Commission enquiry is across the EU, we would be very concerned that our sector, in the UK, might incur unnecessary expense with two reviews being carried out."

Other issues from the 18-month inquiry include concerns about co-operation among insurers on matters such as pools, use of standard terms and common calculation of risk.

These are all areas covered by the current insurance sector block exemption, of certain defined activities from the EU Competition law that are not necessarily anti-competitive, and the Commission intends to review the scope of exemption granted by the present regulation.