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Norway eyes insurer commission ban

Norway eyes insurer commission ban

OSLO, Norway—Norwegian insurance brokers would be banned from taking commissions from insurance companies next year, under rules the government is expected to introduce.

Norway's neighbors Denmark and Finland have already removed the potential for conflicts of interest caused by brokers' acceptance of income from both insurers and buyers, through recently adopted rules.

Brokers in Norway and Sweden, however, are currently only subject to voluntary codes of conduct, drawn up by their national insurance associations, that prevent them from accepting payment from both parties.

Norwegian insurance professionals say that the code of conduct had worked well since its introduction four years ago.

But the discovery of cases of brokers taking payments from both buyers and insurers in the municipal insurance market had, in part, prompted the Norwegian finance ministry to decide that tougher action was required, experts said.

"The proposal has been made on the basis of doubts that have been raised about insurance brokers' independence, because they can receive commissions from the insurance companies. The draft legislation entailing a ban on commissions from insurance companies is given to prevent further doubts being raised," explained Hanne Myre, head of the pensions and insurance section at Kredittilsynet, the Financial Supervisory Authority of Norway.

A government-appointed committee published its proposals for amendments to the relevant insurance legislation at the end of last year and the consultation period will end in mid-April.

Observers said there are likely to be few objections to the proposals and that it is probable the law will be changed as early as January.

The proposed ban currently excludes reinsurance, marine and energy, and aviation business because the application of such rules to these international lines would place local buyers and insurers at a competitive disadvantage, said the experts.

It is thought likely, though, that pressure will build to eventually include these lines.

Olav Vannebo, director of the Norwegian Insurance Assn., said that brokers were "quite angry" with the association when it originally launched the voluntary code of conduct, but said that they accepted that, theoretically, they should be paid by their customers.

Insurance buyers "are asking the brokers to find the best solution and they should pay them. They have been playing along and I think that (the brokers) generally say that it's the right thing to do. It is not convenient for us, because we have to adjust and (the brokers) will have problems with implementation," he said.

Ronald Berg, former consultant with Tillinghast, a unit of Towers Perrin, in Sweden, welcomed the effort in Norway.

"This is definitely a good development and one we have been arguing for for many years. Brokers have two hats and it's now up to them to decide for whom they are performing the services," he said.

Mr. Berg, who is now retired, said that buyers will have to improve the way they purchase coverage because of the changes along with the brokers who will have to change their "attitudes."

"It is good news for buyers, brokers and insurance companies because they know where they stand," he said.

Mr. Berg agreed that the Norwegian rules could act as a catalyst in other countries.

"I'm sure it will happen in Sweden. I'm sure it will spread further and the European Union will be the same. The stone is rolling," he said.