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LONDONThe United Kingdom's insurance supervisor, the Financial Services Authority, has appointed an independent consultant to look into the issue of producer commission transparency.
While reiterating his commitment to a lighter-touch, "principle-based" insurance regulation, John Tiner, chief executive of the FSA, signaled that the supervisor is moving toward taking action on broker commissions.
In a speech at the FSA's Annual Insurance Sector Conference in London last week, Mr. Tiner's said that consultant CRA International has been appointed to carry out an analysis of commission disclosure in the wholesale and commercial general insurance market.
The move followed Mr. Tiner's warning last October that the FSA would mandate disclosure of commissions if the sector failed to come up with its own solution.
In a statement, the FSA said that, "the independent consultants will gather detailed and balanced evidence of the extent to which a lack of transparency is disadvantaging commercial customers, and whether mandating commission disclosure will lead to benefits that outweigh the costs of introducing it."
The FSA also said it would consider regulatory intervention only if CRA found that there had been market failure in this area. CRA's analysis is expected toward the end of 2007.
The Assn. of Insurance & Risk Managers has been unequivocal in its support of commission transparency, but equally clear that it does not want to see regulators interfering in the market.
But David Gamble, executive director of AIRMIC, said that, "there are undoubtedly concerns (about commission transparency). The whole market is not playing by the same rules, which leads to tensions and problems, and eventually to people accepting commissions. Some practices need investigating."
Speaking as part of a panel discussion at the FSA conference, Dane Douetil, chief executive officer of Brit Insurance Holdings P.L.C., noted that the insurance sector had avoided direct regulatory intervention over contract certainty through a successful industrywide initiative. But he said that transparency and broker disclosure has been a more divisive issue and might therefore require regulatory intervention.
"It's a fact that business goes to those paying higher commissions, and sometimes it's very blatant. People who have it won't want to give it up and there are others who want to get into it," said Mr. Douetil.