Broker welcomes EU focus on remuneration

LONDON—Marsh Ltd, the London arm of the U.S. global risk and broking group, has welcomed the European Commission interim report on business insurance, despite its huge questions over the role of the broker in the European risk transfer market.

The EC's report focused on five core areas: profitability of insurers by territory and line; the duration of contracts; the role of reinsurance, horizontal cooperation—in particularly pools; and the structure, function and remuneration of distribution channels.

Of these areas, it was most critical of the structure and remuneration of the distribution network in Europe, and brokers can expect to come under fire over the next eight months as the Competition Directorate General prepares its final report, which will be published in September.

The EC said that it had identified potential conflicts of interest borne out of brokers' dual role as representative of their clients and distribution channel for the underwriters, that it had found widespread use of contingent commissions, despite the campaign to outlaw the practice in the United States and that insurance buyers are highly critical of the lack of transparency over remuneration.

In each case, the EC said that it would examine the problems closely as it enters the next phase of its inquiry and will, in particular, talk to insurance buyers to assess the extent of the problem and possible remedies.

Marsh came out fighting, stating that any initiative that focuses on the needs of the customers has to be welcomed. Toby Foster, a director of Marsh Ltd, said: "What this report makes plain is that insurance intermediaries should be putting clients at the core of everything they do.

"However, like the Commission, we share considerable reservations about the continued accepting of contingent commissions by some brokers. We will continue to make the case strongly that, in the interest of clients, this practice should end," continued Mr. Foster.

"We also welcome the Commission's decision to seek further input on various issues and to hold a public hearing. We look forward to playing our part in ensuring that, when the final report is released, it is clients that benefit," continued the broker.

David Strang, competition partner at Barlow Lyde & Gilbert, said that the role of the broker was clearly the highlight of the report and noted the focus on practices in the United Kingdom market in particular.

"While the first phase of the inquiry has looked at a wide range of issues, the role of the brokers seems to feature most prominently. The Commission is concerned not only about the continuing use of the contingent commissions, but also about the significant lack of transparency in broker remuneration, particularly in the UK," said Mr. Strang.