Will new evidence of grossing up force brokers to itemise client invoices, asks Andy Cook
According to GISC, grossing up - where intermediaries add a percentage to the insurer's premium without disclosing it to the insured or insurer - is on the rise. The reasons range from good old greed to keeping afloat when costs are escalating.
Property owners' markets have witnessed grossing up for years. Property owners and managing agents oblige a tenant to insure with their choice. Any hidden charge is impossible to trace owing to the number of tenants invoiced. Some managing agents openly admit that, without the insurance charges, they would be unable to manage a block.
While it would appear commission disclosure has been ruled out by the FSA for the time being, despite calls from Lloyd's, nowhere is any mention made in the consultation papers of any ideas of how to tackle this problem. It should not be underestimated how serious this issue is.
If an intermediary of any type is adding his own percentage "charge" to an insurer's premium, not only should it be disclosed, but also Insurance Premium Tax (IPT) should be payable on the gross amount. Not disclosing it is fraud.
The FSA has mentioned excessive charging in its consultation documents - this does not deal with grossing up, but with the issue of excessive commissions.
The FSA could require all intermediaries to send, with all requests for payment, an official insurer renewal notice and an explanation, however complicated, of how exactly an individual's specific responsibility to pay a premium is calculated.
This would be simple to impose and regulate and would ensure that the industry's reputation is not held to ransom by unscrupulous intermediaries and naive insurers.