AIRMIC Response to the: Financial Services Authority Discussion Paper 08/2 dated March 2008. [Edited
“Transparency, disclosure and conflicts of interest in the commercial insurance Market”
AIRMIC Profile
AIRMIC is grateful for the opportunity to comment on Discussion Paper 08/2 entitled “Transparency, disclosure and conflicts of interest in the commercial insurance market”, issued by the Financial Services Authority in March 2008.
AIRMIC has a membership of nearly 1,000 and represents the insurance buyers and claims handlers for about 75% of the FTSE 100, as well as very substantial representation in the FTSE mid 250 and other smaller companies. AIRMIC members control about £5 billion of annual insurance premium spend. Additionally, members are responsible for the payment of insurance claims from their own company finances to the value of at least a further £2 billion per year. AIRMIC members also place insurance business with their captive insurance companies to the extent of a further £2 billion.
AIRMIC undertakes regular surveys to identify the current concerns and opinions of the membership. The comments set out in this response are based on recent discussions at the AIRMIC Insurance Steering Group and a survey of the membership at the beginning of June 2008.
Summary of AIRMIC Experience
Because AIRMIC represents the buyers of insurance for large corporates, the membership has considerable experience of dealing with the largest insurance brokers. In addition, several AIRMIC members use smaller intermediaries, so that the AIRMIC membership has experience across the range of brokers and intermediaries.
In general, AIRMIC members enjoy high levels transparency with respect to broker remuneration. 71% of members report that brokers have a good or excellent willingness to disclose total remuneration. 67% of the membership enjoys automatic disclosure of information on broker remuneration.
AIRMIC Position
In summary, the AIRMIC position on broker transparency, disclosure and conflicts of interest is that:
- there should be full and automatic disclosure of total broker remuneration, together with the other disclosure requirements
- the remuneration information should be calculated to a standard formula and presented in a way that enables easy comparison between brokers
- this full disclosure of total remuneration and the other disclosure requirements should be a mandatory requirement of the FSA
- AIRMIC believes that it is vital that an insurance intermediary clearly defines their status as agent of the insurer where this is the case
- AIRMIC suggests that the best way to proceed is to see a market-led solution to the issues discussed in Discussion Paper 08/2
- this market-led solution should be developed by setting up a market initiative similar to the Contract Certainty work in 2005 and 2006