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FSA chief pushes for disclosure

FSA chief pushes for disclosure

LONDON—The head of the U.K. insurance regulator has once again called on risk managers to push their brokers for greater disclosure of commissions they earn, and said that the regulator is increasingly open to the idea of mandating such disclosure if the market can't improve the situation on its own.

In a speech to insurance professionals last week, John Tiner, chief executive of the London-based Financial Services Authority, said the market was "light-years" away from finding its own solution to the question of full transparency.

And he said that while the FSA had been reluctant to impose mandatory disclosure of broker earnings, because it feels that such a rule would not necessarily resolve potential conflicts of interest, he was unsure that a market-led solution drawn up between insurers and brokers was likely to materialize any time soon.

He told attendees at his speech to the Insurance Institute of London, that "because of the diametrically opposed incentives of both sides," an agreed industry-led solution is not likely in the near future, according to a copy of his speech.

"As such, we feel the time has come to take a more objective and forensic look at the possibility of mandating commission disclosure," he said.

The FSA will, he said, highlight such an investigation as a priority in its 2007 /2008-business plan and consider whether regulatory intervention "is the best way forward."

In the wake of probes into broker compensation practices by officials in the United States, many large brokers operating in the United Kingdom ceased collecting contingent commissions from insurers, though smaller brokers generally continue to accept such compensation. In addition, there currently are varying levels of compensation disclosure in the market.

Under current FSA rules, brokers are obliged to tell commercial insurance buyers of all monies earned on placing their business--if asked by the buyer.

In his speech last week, Mr. Tiner reiterated comments he made at the Assn. of Insurance & Risk Managers conference in June, calling upon risk managers to be more assertive when asking for clarity and transparency from their brokers.

He said that "it would seem that disappointingly few buyers are exercising their right to request disclosure and, as a result, there is an absence of transparency to the customer."

"Some firms have suggested to us that customer interest rarely extends beyond the premium and the cover itself, and while some buyers do seek positive declarations from their broker that they are not earning contingent commissions, seldom do they request actual commission disclosure," he said.

He added: "Once again, I would urge those corporate buyers in the market to recognize their position of influence, punch their weight and in so doing, drive through greater efficiencies and transparency in the market."

AIRMIC welcomes Mr. Tiner's remarks and is in favor of mandatory commission disclosure, said a spokesman for the London-based association of risk managers and insurance buyers.

The risk management body encourages its members to insist upon disclosure from their brokers, he noted.

"We have been saying for the past 18 months that, if the market fails to deliver satisfactory results on this issue, the FSA may have to consider mandatory disclosure," Colin Campbell, deputy chairman of AIRMIC and risk manager at London-based Arcadia Group Ltd., said in a statement.

"We do, however, see this action as a last resort, but it is reassuring that the regulator is fully engaged," he said.

"We have strongly supported the FSA's policy position," said Eric Galbraith, chief executive of the London-based British Insurance Brokers' Assn., who noted that BIBA believes that "provided the potential conflict of interest that receiving commission generates is identified and managed, and commission is disclosed upon request, the issue is adequately addressed."

Jane Owen, company secretary, legal and regulatory director at Aon Ltd. in London, said: "We are committed to full transparency...And we believe it will level out what we see as a currently unlevel playing field."

Increasingly, she noted, there is polarization in the market, and it has become evident that a market-led solution is unlikely in the near future.

"We believe that all our customers, be they large, sophisticated risk management clients, middle-market companies, small-to-medium enterprises or private individuals, should know exactly what their broker does for them and exactly how much their broker gets paid," said a spokesman for Marsh Ltd. in London.

"At Marsh, we already provide clients with details of our earnings, and we believe that the rest of the market should do so," he added.

"We hope that the FSA will not have to mandate disclosure. But it is clear that the present position is unsustainable. The industry itself needs to act before the FSA forces it to," he said.

Mr. Tiner's remarks come as "no surprise," according to Toby Foster, chief executive of Marsh's retail practice in London.

Marsh, he said, already is fully transparent, and the broker believes that a move to full transparency across the market is "coming anyway."

"The market is not just increasingly regulated, but also increasingly scrutinized by our customers," he said.

"Personally, I hope the industry takes this action without being regulated into it," he said.

Adrian Ladbury contributed to this report