Insurance brokers have been told by regulators that they must improve the management of conflicts of interests when dealing with small business clients.
The Financial Conduct Authority today published the results of a review that looked at a sample of seven large, though unnamed, insurance intermediaries serving small-to-medium-sized enterprises to establish if their business structures and remuneration could create conflicts of interest that work against the best interest of customers.
The FCA concluded the structure of some businesses and sources of revenue created significant conflicts of interest, particularly where firms or groups fulfilled multiple roles in the distribution chain.
If these were not properly managed, they could result in decisions being made in the interest of brokers rather than their small business customers, including possible over-paying or advice to buy products they don't need. The thematic review concluded control frameworks and management information had not developed at the same pace as business models in some firms, with many reliant on individual disclosure rather than having effective control frameworks.
Clive Adamson, director of supervision at the FCA said: 'Small businesses are experts in their particular field but are often not experienced in buying insurance.
'That is why they need to be able to trust their insurance intermediary to act in their best interests. If there are conflicts of interests that are not identified or properly managed, that trust is put at risk.'
The watchdog added it would now be working closely with the industry to communicate the results of the review and, with firms involved, will use appropriate regulatory tool to address specific issues.