FSA releases discussion paper on transparency

LONDON – The Financial Services Authority (FSA) has published a discussion paper (DP) looking at intermediary commission disclosure and wider issues of transparency in the commercial insurance market.

In December 2007, the FSA published an independent report that considered whether disclosure of commission earned by commercial insurance intermediaries should be made mandatory. Due to cost, the report found that intermediary disclosure by itself was not justified, but it raised wider concerns about market inefficiencies, which the FSA stated it would publish a DP about.

The new paper examines what conditions are necessary to ensure an environment that encourages market efficiency where buyers have access to clear, comparable information about the role of the intermediary, including their services and the way they are paid.

Dan Waters, director of retail policy and themes at the FSA, says: “It is important that insurance buyers know what they're paying for when they use an intermediary. We remain concerned that for some buyers of commercial insurance this is not the case. Our discussion paper offers some potential regulatory solutions, but the door also remains open for an industry-led response."

The increased blurring of the distinction between insurers and intermediaries is also addressed by the DP, which examines the need for firms to ensure they properly manage conflicts of interest. Three broad options to addressing these concerns are raised in the paper. They are having: more rigorous enforcement of existing rules through a combination of further guidance and additional reporting requirements; an enhanced regime to improve quality of disclosure of commission (on request by the customer), services and status; and mandatory automatic disclosure of commission.

The closing date for the paper is June 25, 2008.