London Buyers Want Transparency

Corporate insurance buyers in the United Kingdom want brokers to automatically disclose their commission earnings when arranging their coverage, according to a survey.

The research also found a widespread lack of understanding about the level and breadth of broker remuneration.

The survey, conducted by Insurance Research and Strategy, was sponsored by the International Underwriting Association (IUA) and Lloyd's Market Association (LMA).

More than 500 corporate insurance decision-makers were interviewed for the survey from a sample of U.K. midsize-to-large corporate businesses that use a broker for their main commercial property-casualty or motor insurance, or both, the organizations said.

The survey found strong opinion favoring the introduction of mandatory disclosure of commissions by brokers. This would encompass recognized commission and fees from clients, as well as payments from underwriters, including commissions paid in the London market.

The results showed high levels of ignorance and confusion surrounding broker remuneration. Only one respondent in five was aware that brokers earn commission over and above the percentage they charge their clients, even though this has long been common practice. In addition, the respondents seriously underestimated broker commission.

While 48 percent of those currently paying commission either did not know or refused to estimate the amount of commission their broker earns, the remainder guessed an average of 9.7 percent commission for their main commercial combined insurance policy. A typical commission is actually between 17.5 percent and 20 percent, the associations said.

For commercial motor policies the clients thought it is about 8.9 percent. Typically it is around 10-to-15 percent.

When informed that the U.K. regulator Financial Services Authority requires brokers to disclose commission upon request by their clients, more than 68 percent welcomed the position.

For different types of commission, respondents were asked if it should be mandatory, voluntary or not necessary for a broker to disclose the levels of commission received. Between half and 60 percent said they were in favor of mandatory disclosure.

Larger firms (with commission between ?250 million and ?400 million–U.S. $433 million and $692 million), and those employing risk managers, were much more aware of commission levels and also more likely to favor mandatory disclosure of commission.

Despite their desire for more transparency, the survey suggests that most buyers of commercial insurance do not believe that brokers' commission arrangements compromise the service they provide.