John Jackson's proposition that brokers should disclose their commission and become fee-based seems to have no support from your readers. Becoming fee-based is something that brokers and their clients should be left to sort out between themselves, free of regulatory pressure.

The key issue here is disclosure. Risks placed in the London Market frequently contain discounts off the gross premium, in addition to the brokerage/commission allowed by underwriters. Some of these extra discounts are for the benefit of the policyholder, others for the broker. In some cases the broker takes the former into his brokerage account, unknown to his client who is unaware of their existence. Furthermore, the client is never informed of the latter either.

Your broker readers' letters seem to overlook the fact that brokers are the agent of their client and thus obliged by agency law, at all times, to put their client's interests before their own; and not to use their position as an agent to obtain a "secret profit" from a third party. There have been many reported instances of brokers telling the client that the premium due is greater than that required by underwriters and pocketing the difference.

The only effective means of doing away with these practices is for the FSA to require all brokers/independent intermediaries to disclose to their clients on every debit note/invoice; the gross premium as per the contract; the net premium to underwriters as per the contract, and the make-up and the beneficiaries of the difference. The FSA should also require brokers to disclose any future earnings that they might receive from underwriters as volume overriders and profit commissions, some of which will not be directly attributable to one specific policyholder, but to many.

The GISC could have addressed these issues, but has not done so; due, no doubt, to the preponderance of brokers on its board, proving that "self-regulation" is an oxymoron.

David H Boag

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