UK brokers will have to prove that industry guidelines on commission transparency are working

Brokers once again face the threat of being forced to disclose their commissions, more than a year after the FSA finally abandoned its proposals for mandatory disclosure in the face of intense industry lobbying.

The European Commission is looking to revive the controversial and costly plan, Insurance Times has learnt.

Unless UK brokers can prove that the industry guidelines on commission transparency are proving effective, the Commission will try to force disclosure through as part of its review of key legislation governing the industry, the Insurance Mediation Directive (IMD).

Nottingham-based broker Russell Scanlan’s operations director, Andrew Jenkins, said: “We would be very disappointed to have gone through all the work to comply with the new industry-led system just to find that all bets are off and this [mandatory disclosure] will be pushed through on a ‘take it or leave it’ basis.”

The revised directive is not due to be put before the European parliament until the first quarter of 2011, but a draft is scheduled to be published by the summer for consultation.

The existing IMD is silent on whether brokers should disclose their commissions. But the Commission has said in a letter to the Committee of European Insurance and Occupational Pensions Supervisors that it intends to create a more transparent regime.

The level of disclosure on insurance commissions varies widely across the 27 states that the directive will cover, however, ranging from an outright ban on commissions in some Scandanavian countries, to Italy where there is no expectation for commissions to be revealed.

Following the introduction of industry guidance by the FSA, the UK operates a policy of disclosure on request.

The push for a harmonisation on commissions is part of a broader effort by the Commission to create a level regulatory playing field for the industry across the EU.

The Commission is also investigating the scope of activities that should be regulated, such as introductions, which are not covered by the existing directive.

Biba regulation and compliance manager Steve White called on the industry to use the FSA’s investigation into whether brokers are abiding by the new industry guidance to prove the case for the UK’s voluntary arrangements.

White said: “If the firms have done it, we will be able to say that we have a solution that works. If they find that it is not being implemented, they will say it’s just a good idea on paper.

“Brokers have a chance to influence the debate, but if they don’t engage with the guidance, they will lose that opportunity.”

The news that mandatory disclosure is under the Commission’s microscope follows last week’s spat between Biba and the Royal Institution of Chartered Surveyors over the issue.

Willis uk backs plumeri position

Willis UK and Ireland chief executive Brendan McManus has echoed boss Joe Plumeri’s unique stance on contingent commissions.

Last month, the ban imposed in the wake of US attorney-general Eliot Spitzer’s reforms was lifted, leading the way for broking giants such as Aon, Willis and Marsh to start accepting them again.

But speaking to Insurance Times, McManus said that refusing to accept contingent commissions was good for business. “My experience in Willis has been that [transparency] has been a force for good, not something that is destructive to your business model or forces your margins down or anything like that.”

While Willis has firmly stated that it will not resume accepting the payments, rival broking giants Aon and Marsh are widely expected to start accepting them again.

In an exclusive interview with sister magazine StrategicRISK, Plumeri said that insurance buyers should boycott brokers that decide to accept the commissions. “The best way to regulate contingents out of [the brokerage] business is … you have a buyer’s revolt. I hope that happens.”