FSA Examines Information Transparency In Commercial Insurance Market

by Amanda Banks, for LawAndTax-News.com, London

25 March 2008

The UK's Financial Services Authority (FSA) last week published a discussion paper (DP) looking at intermediary commission disclosure and wider issues of transparency in the commercial insurance market.

In December 2007, the 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 (DP) to look into this area.

The DP examines the conditions necessary to ensure an environment that encourages market efficiency. Key to this, according to the FSA, is that buyers have access to clear, comparable information about the role of the intermediary, including their services, and the way that they are paid.

Dan Waters, Director of Retail Policy and Themes, commented:

"It is important that insurance buyers know what they're paying for when they use 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 DP also examines the need for firms to ensure they properly manage conflicts of interest.

The DP 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 revealed that it will 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 June 25th, 2008. Feedback from the DP and the results of the additional work will 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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