John Tiner, the head of the U.K.’s Financial Services Authority, warned U.K. brokers that, unless the market comes up with a solution on the issue of disclosing brokers’ commissions, the FSA would be “taking a look at mandating” one in 2007.
Speaking at the Insurance Institute of London’s (IIL) first lecture of the season, and the 100th year the organization has been sponsoring talks on insurance matters, Tiner had nothing but good words on the progress of contract certainty in the London market. He noted that “deal now, details later” was rapidly becoming a thing of the past, as the market had “stepped up to face the issue.” As a result the FSA has shelved plans to implement its own rules to assure contract certainty. “We’ve put them on the back burner,” said Tiner; “I’m satisfied that the people in charge will be able to solve any remaining problems.”
He did warn, however, that the regulations “option is still open,” and urged more work on improving the quality of data, solving “legacy issues” and cleaning up the backlog of contracts that have not been properly concluded.
He had less kind words for the ongoing conflict between brokers, underwriters and ultimately the buyers of insurance over the issue of commission disclosure. While NY Attorney General Eliot Spitzer’s investigations, which began in 2004, triggered the controversy, it’s taken on a life of its own in the U.K. The underwriters, and ultimately the carriers, fear punitive action and want disclosure. The brokers remain opposed, as they feel the costs, fees and charges incident to placing a risk in the subscription market is proprietary, and should not be disclosed to potential competitors.
The FSA’s position seems to align more closely with the underwriters, primarily because it feels that more transparency in the insurance market will result in lower costs and will contribute to making London a more competitive and attractive market for insurance buyers. Tiner did admit, however, “in practice they [the buyers] don’t ask” about the costs, and that they “should be more interested.”
While he said that in 2007 the issue would be one of the FSA’s main priorities, he still hopes that “the market should find a solution.” If it doesn’t, the FSA appears fully prepared to step in and impose some form of mandatory disclosure.
It’s reluctant to go too far, however, as the increased costs and the added burden of more regulations could result in more business being transferred outside of the U.K. to places like Bermuda.
That brought a knowing glance from Robert Hiscox, Chairman of Hiscox plc, and the IIL’s presenter for the lecture, who has frequently criticized the London market in general and Lloyd’s in particular for its high costs and cumbersome procedures. Hiscox recently announced plans to relocate its corporate domicile to Bermuda.
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