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The Actuary The magazine of the Institute & Faculty of Actuaries

Time to come clean on commission

Time to come clean on commission The Financial Services Authority (FSA) has published a discussion paper (DP) that looks at intermediary commission disclosure and wider issues of transparency in the commercial insurance market.

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

1 More rigorous enforcement of existing rules through a combination of further guidance and additional reporting requirements
2 An enhanced regime to improve quality of disclosure of commission (on request by the customer), services and status
3 Mandatory automatic disclosure of commission.

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 DP to look into this area.