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In December 2007 the Financial Services Authority (FSA) published an independent report that considered whether disclosure of commission earned by commercial insurance intermediaries should be made mandatory. 

The report found that intermediary disclosure by itself was not justified on cost benefit grounds.

The report, however, raised wider concerns about market inefficiencies and the FSA announced that it would publish a discussion paper to look into this area.

The discussion paper examines the conditions necessary to ensure an environment that encourages market efficiency.

Key to this is that buyers have access to clear, comparable information about the role of the intermediary including their services and the way they are paid.

Dan Waters, director of retail policy and themes, said that it was important that insurance buyers knew what they were paying for when they used an intermediary. 

“We remain concerned that for some buyers of commercial insurance this is not the case. Our discussion paper offers some potential regulatory solutions, but the door also remains open for an industry-led response," he added.

In light of the increased blurring of the distinction between insurers and intermediaries the discussion paper also examines the need for firms to ensure they properly manage conflicts of interest.

The paper considers three broad options for addressing these concerns:

• more rigorous enforcement of existing rules through a combination of further guidance and additional reporting requirements;
• an enhanced regime to improve quality of disclosure of commission (on request by the customer), services and status; and
• mandatory automatic disclosure of commission.

The FSA said it would be carrying out additional work both with regulated firms and their customers. 

This work will consider the nature and extent of intermediaries’ conflicts of interest and the benefits of improved information disclosure.

The closing date for the paper is 25 June 2008.  The FSA said that feedback from the discussion paper and the results of the additional work would help to inform the decision about whether to make changes to FSA supervision or rules.

If new rules are required, they will be consulted on in Q4 2008.

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Related links

• Financial Services Authority
• Transparency and Conflicts of Interest in the Commercial Insurance Market