U.K. Risk Mgrs Group: Let’s Mull Broker Fee Issue
NU Online News Service, Feb. 22, 4:00 p.m. EST?A top executive with the U.K.’s risk management association has told members to wait and see how brokers behave this year before pushing for fee regulation.[@@]
Andrew Cornish, chairman of the Association of Insurance and Risk Managers (AIRMIC) made his comments yesterday in London in remarks after the group held a “road show” on the topic of broker compensation.
Mr. Cornish said it was too early for commercial insurance buyers to lobby for formal regulation of broker remuneration because, “We are in a period of transition. We need to see what our members’ experience is with transparency and the new business models that brokers are putting into effect, and that will take at least one renewal.”
Mr. Cornish commented that in any event, the Financial Services Authority (FSA) has no plans to introduce such regulation unless it finds evidence that buyers have suffered, which so far it does not have.
He said this had been made clear by Sarah Delgarno, manager of the FSA’s wholesale insurance division, who spoke at the meeting.
AIRMIC said its road show, which is also taking place in Manchester and Edinburgh, gives members a chance to hear about the issues involved with broker remuneration from all sides of the industry and express their concerns.
In addition to Ms. Delgarno, other speakers at yesterday’s event were Nicholas Bailey, BBA Group risk manager; Peter Hill, liability manager of Axa Corporate Risks; and Martin Rayfield, executive director of Marsh’s risk management practice, its large corporate client division.
Mr. Cornish said there is a spectrum of opinion in AIRMIC, but he believes that the members have the professional skills to compare the information they have received from their brokers in the past with what they will now get and judge whether they are satisfied with the level of disclosure.
Disclosure of compensation, a long simmering issue, exploded this October when the New York attorney general’s office accused Marsh, the world’s largest broker, of arranging the submission of phoney quotes to customers in order to rig bids. Insurers cooperating with the scheme were said to have used undisclosed compensation arrangements to pay kickbacks.
In the wake of the revelations Marsh and Aon said they would no longer accept incentive payments from insurers.
AIRMIC said it is concerned about disadvantages small and medium-sized enterprises may face. BBA’s Mr. Bailey noted at the road show that small and medium-sized enterprises are more likely to use smaller brokers who are reluctant to follow the big brokers and give up additional commissions from insurers. Second, small and medium enterprises are less equipped to manage the information that the new transparency regime will generate.
According to Mr. Bailey, the large corporate client has the ability and the time to investigate, but the small business where, perhaps, the finance director buys the insurance does not have the time, nor will he or she necessarily fully understand the issues.
FSA rules do require firms to have procedures to deal with conflicts of interest of all types, and Ms. Delgarno told the road show that the FSA has just begun to contact a cross-section of broking firms to discuss how their systems for identifying potential conflicts of interest and managing them are working.
“At the moment, we are open-minded. We may find that the conflict of interest rules are working well and that no further action needs to be taken,” she said
AIRMIC said it sees a large part of its role as increasing understanding and facilitating communication across the industry and with the FSA until the time when members decide the transparency regime is working or that it has not achieved the desired result and the FSA should be asked to act.