The British Insurance Brokers Association (BIBA) has hit back at claims that commission payments by insurers leave intermediaries fundamentally conflicted.
Biba has reacted strongly to the report by Mactavish that said there were significant flaws in the way brokers were currently remunerated. The policyholder adviser said clients should be given the opportunity to know just how much intermediaries are earning for placing their risks.
The firm’s report said brokers can earn up to 80% of their revenue for a transaction from the insurers and questioned the ability for intermediaries to be acting in the best interests of their clients if they were earning more money from the underwriter.
“Brokers receive substantial premium-linked revenue from services provided to insurers creating a second potential incentive to put the interests of insurers above those of clients,” said Mactavish. “A hopelessly conﬂicted and untransparent broker system has been allowed to develop during a long soft market but it is now being brutally exposed. A hard market exacerbated by a once in a generation Covid-19 recession gives this anachronistic structure nowhere to hide – and in the absence of stringent regulator action clients must drive reform alone by taking greater control of their placement.”
It added it was surprised that last year the FCA closed its own investigations into the wholesale broking and intermediary sector without addressing the “inequity in the distorted system that favours brokers and insurers over policyholders”.
“In this context, why would you appoint a broker on an exclusive basis to act on your behalf, rather than competing them head to head and ensuring that these conﬂicts do not negatively impact your costs and cover?
“The only option for commercial policyholders is to take control of the placement process themselves.”
It added: “Many broker terms of business agreements (TOBAs) pay lip-service to transparency while in practice doing more to confuse than clarify – discussing generalities of payment types in pre-printed standard documents that do not set out what payments apply to the client’s own case, or how much they are. These are important details and transparency standards in commercial insurance fall well short of those in the consumer segment.”
Biba CEO Steve White (pic) issued a statement which described the report as “headline grabbing” adding “rest assured, BIBA is and will continue to refute the assertions in the document”.
Mr White’s statement to the media added: “Brokers are the agent of the client as well as the insurer and one of their fundamental roles under the Insurance Distribution Directive is to act in their customer’s best interests – which is exactly what they do.
“Remuneration by way of commission is actually beneficial for customers who are able, because the broker is paid in this way, to receive advice before having to commit to buying a particular insurance policy.”
He said insurance regulator the Financial Conduct Authority ‘s (FCA’s) SYSC rules (Senior Arrangements, Systems and Controls) outline a number of requirements in managing conflicts of interests. These are followed very closely by brokers.
“Conflicts of interests will always exist in any intermediated sector which is why the FCA, requires and monitors that these to be managed which they are,” he said. “The FCA examined conflicts within a thematic review quite recently and taking their findings into consideration we wholeheartedly dispute the issues raised by Mactavish in their report.
“Brokers have helped clients receive millions of pounds in claims payments since the beginning of the Covid-19 pandemic and continue act for their clients to get fair claims settlements.
“It would be against competition law to speak about potential premium increases but we draw attention to the fact that insurers have been giving payment holidays and providing refunds on some classes of insurance for example car insurance as claims costs and accident risks have reduced in line with fewer vehicle journeys.”
Mr White said brokers are transparent on commissions and on request will gladly provide full details of earnings to clients.