Brokers are frustrated that the FSA has backed off mandatory commission disclosure, but will start a review of the decision in the New Year

The FSA’s decision not to mandate commission disclosure at present has been welcomed in the market, but the uncertainty has left many frustrated.

The review, carried out for the FSA by con-sultancy CRA International, revealed that mandatory commission disclosure would cost the industry £87m, far outweighing the benefits.

But the FSA said there were inefficiencies in the market relating to commission transparency. It will begin a programme of work in the New Year to address these issues before making a decision on whether to mandate disclosure.

The decision has been welcomed by the majority of brokers, but there is frustration that the threat of mandatory disclosure will hang over their heads in the New Year.

Biba said the FSA would spend “valuable time and resources” on a further review, after initially commissioning CRA to carry one out in March.

Eric Galbraith, Biba chief executive, said: “This has cost the industry hundreds of thousands of pounds, if not millions. We need to move on and we believe these resources would be better spent on other issues.”

Grant Ellis, chief executive of the Broker Network, supports Biba’s view. He said: “The FSA refuses to say it will drop it, it’s bizarre. I’m disappointed it hasn’t been buried once and for all. There are far more pressing matters on the FSA’s agenda.”

The IIB confirmed it would be in Brussels during 2008 to discuss the issue with the EU Commission as the Insurance Mediation Directive comes up for review

Andrew Paddick, IIB director general, said: “Most European markets are largely insurer and tied-agent controlled, which could result in proposals for change not favourable for independent brokers.”

Airmic welcomed the FSA statement on broker remuneration, while calling for a market solution to resolve shortcomings over transparency.

The FSA commissioned CRA International to examine whether to go ahead with the introduction of a mandatory commission disclosure regime.

The FSA commissioned CRA International to examine whether to go ahead with the introduction of a mandatory commission disclosure regime.
CRA found evidence of market failure in the middle segment of the commercial market, which accounts for about 10% of UK employers.
It found that the extent of the market failure was limited, as the majority of intermediaries (50%-60%) disclosed remuneration.
The main benefit of a mandatory disclosure regime would the reduction in gross premiums as a result of reduced commissions, arising from increased competition between brokers.
CRA found that the one-off cost to the industry of a mandatory disclosure regime would be £87m with an ongoing cost of £34m, primarily falling on smaller intermediaries.
To justify the cost of forced disclosure, commissions would need to fall by between 29% and 36%, CRA said.
Evidence suggested commissions were likely to fall by only 10%.