But FCA says that’s because they don’t know how much brokers really make
Fewer than 1% of SME customers use their right to force insurance brokers to reveal how much they are paid by insurers for putting business their way, the FCA’s review into broker conflicts of interest has revealed.
Some 53% of small businesses surveyed by the FCA said they were not very concerned about the level of commission the broker earned from arranging their insurance, and another 12% said they were not at all concerned.
However the regulator said this could be because customers often did not realise how much brokers actually receive from insurers.
Three quarters of SME customers expected the commission their broker received to be 15% or lower – but the figure is really much higher.
In one example, the FCA identified a broker which received commissions of as high as 45% for placing business with a managing general agent in the same group, compared to 20% to 25% for open market business.
The regulator’s probe of the UK’s seven largest SME brokers found most were unable to provide accurate information about how their customers’ insurance policies had been sourced and placed.
“Essentially, firms didn’t know what proportion of their SME customers (by value or number) had had their insurance policies sourced by open market broking, by using a panel of insurers, placed to a preferred facility or binding authority after consideration of other options, or placed to a single insurer without consideration of other markets,” the regulator said.
The FCA concluded that insurance brokers were not managing the conflicts of interest inherent in their business models.
It is “using the full range of regulatory tools available” to address issues found in the thematic review.