Large brokers have come out in support of a recent survey calling for mandatory and automatic disclosure of broker commissions in the U.K.
The survey, which polled 500 commercial insurance buyers, was conducted on behalf of the International Underwriting Association and the Lloyd’s Market Association.
It showed that more than two-thirds of commercial insurance buyers believe they should know the total income their broker receives from placing and handling their company’s insurance requirements.
The report also uncovered a widespread lack of understanding among insurance buyers about the level and breadth of broker remuneration. It revealed that businesses seriously underestimate how much a broker can earn from commissions. Most respondents thought it was around half the actual figure.
The survey showed that corporate insurance buyers want the U.K. Financial Services Authority to introduce mandatory disclosure of all commissions received by brokers.
Tony Medniuk, chairman of the IUA, said in a statement that the survey demonstrates insurance buyers’ desire for complete disclosure. “It sends out a clear message in support of possible further moves by the FSA to require openness in the market from all brokers.”
Big brokers operating in the U.K. have welcomed the survey and its findings about mandatory disclosure. Toby Foster, chief executive of U.K. retail business at broker Marsh told Reactions that the results of the survey reflected what his company had been hearing from clients.
“We believe that all our customers – be they large, sophisticated risk management clients, middle-market companies, small-to-medium-sized enterprises or private individuals – should know exactly what their broker does for them and exactly how much their broker gets paid,” says Foster. “At Marsh, we already provide all our clients with a statement of earnings, both prior to inception and afterwards.”
He adds: “This survey sends a clear message from customers to the market at large, and I would urge all parties with an interest in promoting transparency and fair treatment of clients to pay heed to it.”
Fellow broker Aon says it also backs the call for mandatory disclosure. Nigel Roberts, chairman of the marine division of Aon, told Reactions that Aon now discloses all commission payments, whether or not clients request it. “Lack of transparency doesn’t do our industry any good. Its not healthy,” he says.
Roberts acknowledges that some brokers are unwilling to commit to full disclosure. He questions the motives of those brokers who refuse to disclose commission payments. “Why wouldn’t you want to disclose payments? The only possible reason is that you can’t justify the payments,” he says. “If more brokers commit to full disclosure it makes it more difficult for others to remain opaque.”
He adds that intervention from the FSA would create a level playing field among firms.
Andrew Cornish, head of insurable risk at U.K. energy company Centrica and past chairman of U.K. risk management trade group Airmic, says the big brokers are moving in the right direction. But he adds: “Unfortunately that means a two-tier market is developing, with regional brokers especially making no progress at all, and that concerns us.”
The FSA remains reluctant to make full disclosure a legal requirement. “We haven’t changed our tune since we issued our Dear CEO letter last year,” FSA spokesman Joseph Eyre told Reactions. “We don’t believe mandatory disclosure is a solution. But we will keep the option under review.”
The FSA’s Dear CEO letter, sent out last November, said the authority was looking at the case for introducing the compulsory disclosure of commission and, if so, whether to make this binding for both brokers and insurance companies. It will consider disclosure legislation within a wider review of brokers’ business conduct, which is due to begin this April.
