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Broker conflicts of interest: can there be smoke without fire?

Airmic's Leadership Group met with the Financial Conduct Authority in Harrogate to discuss the findings of the FCA's recent Wholesale Insurance Broker Market Study. The debate was conducted under Chatham House rules. The following are some highlights of the lively discussion.

The wholesale broker market is working well for customers - but it's far from perfect. That was the overriding sentiment among participants at the Leadership Group's breakfast meeting held in Harrogate last month.

In February this year, the FCA concluded a 15-month review of competition in the wholesale broker market, finding no conclusive evidence of material failings in competition, while flagging some areas for improvement.

Looking into their findings in more detail, members at the meeting heard that brokers' roles have expanded considerably in recent years, leading to greater complexity. While there has always been the potential for dual agency, managing this risk has become more challenging.

However, the FCA did not identify customer harm arising from brokers failing to identify and manage these conflicts. "Could they sometimes have been managed better? Yes. But ultimately, there was no evidence of failings in competition causing harm or meriting intervention."

Areas for improvement include the "quality of disclosure" from brokers, which is not consistently meaningful across the entire market, the meeting heard.

Expansion in the use of facilities has also been significant, it was noted, although to a lesser extent than some media reports have suggested. Most agreed that this in itself is not a cause for concern, so long as the facility is serving a genuine need for the customer, rather than being designed primarily to maximise broker revenue. There are "examples of both" practices in the market, but for the most part, policyholders are increasingly asking the right questions of their broker.

Some members voiced a concern that facilities may be preventing policyholders switching broker without changing insurer, to which the response was a mixed picture. For the most part, businesses were confident that they could use different brokers if needed, but "it wasn't always that easy". According to the FCA, while there may be some individual issues, they found "no empirical evidence" that it was a significant issue across the market.

Broker remuneration has long been a contentious issue: there is, after all, an inherent conflict in the business model. However, many felt that transparency levels are good and the problems have been overstated. As one member put it: "There can be a lot of smoke without fire".