Danny Walkinshaw kick-starts the discussion on commission disclosure by asking three brokers for their views.
The FSA has opened up the debate on commission disclosure to the entire market with a call for responses to its discussion paper, published last week. The FSA believes the UK commercial insurance intermediary market lacks transparency and it is worried about conflicts of interest caused by the blurring lines between brokers and insurers. The paper lays out three options for regulation to tackle this: to step up FSA supervision of firms; to expand the amount of commission information that must be disclosed if a customer requests it; or full mandatory disclosure across the board. Though the FSA says it would prefer an industry-led solution, it makes it clear that it is prepared to introduce new regulation. The market has until 25 June to respond, and convince the FSA that it can regulate itself. To make your point of view heard, email email@example.com. IT
Giles Ford, managing director, RG Ford Insurance
The small independent brokers face the biggest risks from mandated commission disclosure, according to Giles Ford, managing director of RG Ford Insurance. Ford says that forced disclosure would be a catastrophe for small brokers like RG Ford, and would wipe out such firms almost instantly. In 15 years of insurance I have been asked only once what commission rate I have been on, he says. If it were made mandatory, I think it would cause enormous damage to the insurance market. Everything would go down to a fee and it could be the most catastrophic thing to happen for a long time. Brokers would be out of business within a couple of years.
Ford insists that commission disclosure would result in a drop in commissions paid by insurers, and switching to a fee-based system would have a grave impact. Our income would absolutely take a nosedive overnight, he says. Our average commission rate is about 17% and I would expect that would go down to 10%. Everyone would have to charge fees. We would not be able to charge fees above 10%, I would have thought. So effectively you are just reducing your normal commission to 10% and that is a huge drop in income and it would take us out of business. We could not run the business at those levels.
He says the prospect of commission disclosure is already causing concern in the broking community. I know two brokers that sold out and one of their great concerns was commission disclosure. They were worried that it would have taken them out of business instantly, he says. According to Ford, small brokers play a vital role in the market and offer a better service to small clients. He says that competition is keeping the market afloat. Commission disclosure would not do the general public any favours. National brokers would take control and that would not be good for competition, he says. â€œAt the end of the day it is a cruel market and if the client is not happy with the service they will go elsewhere. Small brokers offer something different that the big boys canâ€™t.