FERMA Calls EC Broker Commission Rules ‘Not Entirely Satisfactory’

The Federation of European Risk Management Associations notified the European Commission that the level of transparency of broker commissions is still “not entirely satisfactory.” FERMA first proposed changes in the brokers “code of practice” more than two years ago.

The EC’s competition inquiry into business insurance (full text available on the FERMA web site at: www.ferma.eu) has produced a “very uneven” result said FERMA’s bulletin. It notes that in the global brokerage community “major broking firms have been pushed by their US headquarters to be more transparent,” but there is also “still strong opposition to the disclosure concept from a large majority of the rest of the market.” As a result brokers have been reluctant to sign up and adhere to FERMA’s proposed “Code of Practice.”

Specifically, FERMA representatives told the EC that “where there is disclosure, its content is often vague and unclear as to the nature of intermediaries’ direct remuneration, while contingent commissions, payments from insurers based on account value, are rarely revealed.”

The organization distanced itself from accusations that “the level of commission would lead professional brokers to recommend an insurer against their clients’ interests,” but maintained that “it could affect the way they advise clients on, for example, choice of policies or wordings.”

“Commercial insurance is not a uniform product, and the buyer has to use judgement to get the most appropriate coverage. To do that he or she needs impartial advice,” explained Thierry van Santen, FERMA’s spokesman on competition matters. He is also the risk manager of Danone and a past-president of FERMA .

FERMA told the EC that left unaddressed such practices could distort competition. “It is obvious that the first objective of transparency is to bring confidence between brokers and clients, but also to certain extent, it should help improve the efficiency of the market,” said the bulletin.

As a result of its dissatisfaction, FERMA proposed that the EC adopt the following rules:
— Any transaction should show the level of remuneration paid by the insurer to the intermediary
— The function of the intermediary should be distinguished according to whether it is acting as a broker with remuneration paid or agreed by the client or as an agent where it is providing a service for an insurance company, which role would need to be clear to the client.
— Reinsurance commissions could create some conflicts of interest and a European regulation could require strict separation of reinsurance intermediation from traditional brokerage services.
— Additional incentives given by some insurance companies to brokers should be strictly restricted.

Van Santen warned that “the choice for business insurance buyers is already limited, and we have asked the Commission to avoid making any regulations that would have the effect of reducing still further the number of insurers writing major commercial risks.” To do so would further concentrate the market for business insurance even more than it is today.

FERMA also noted: “The issue of broker commissions and of choice of insurers are expected to be among the subjects discussed at the insurance roundtable on October 3 at FERMA’s biennial Forum conference, which will be held in Geneva. The participants are Jean-Paul Rignault, CEO of AXA Corporate Solutions; Nick Beck, head of corporate clients for Swiss Re; Clive Tobin, CEO of XL Insurance; Sarah Turvill, chairman of Willis International, and Dick Verbeek, chairman and CEO of Aon Risk Services International.

For more information about the FERMA Forum 2007, go to the organization’s web site, given above.

Topics Carriers Agencies Europe