Broker remuneration guidance

LAST MONTH AIRMIC published its own guidelines for commercial insurance buyers in their dealings with brokers. They highlight potential conflicts of interest and how they can be identified by risk managers.

AIRMIC’s document goes beyond the ‘industry guidance’ recently endorsed by the FSA, and replaces AIRMIC’s original ‘questions for brokers’ produced in 2004 in response to the Spitzer investigations. While AIRMIC gave a qualified welcome to the industry guidance, drawn up by BIBA, LIIBA, the IIB and ABI, it considered that more needed to be done.

While the industry guidance was a step forward in the process of clarifying the status of intermediaries and the means by which they are remunerated for their professional services, AIRMIC believed that the buyers of commercial insurance would require more information about circumstances where conflict of interest could arise. Additionally, buyers of commercial insurance require information on how any potential conflicts of interest will be managed. AIRMIC’s own guidelines list the types of potential conflict of interest that may exist between brokers and insurers, especially financial or other links between them.

‘There is a need for automatic, mandatory disclosure of the source and amount of any broker's remuneration received from the market so that buyers know how their money is to be distributed and can, therefore, make their own assessment regarding any potential for conflicts of interest. There should also be total clarity as to whether the intermediary is acting as on behalf of the buyer or the insurer. We believe that it is no longer acceptable for the intermediary to act on behalf of both parties during the same transaction,’ said Kip Berkeley-Herring, chair of the association’s insurance steering group.

The AIRMIC guidance was produced by technical director Paul Hopkin. ‘AIRMIC’s original “questions for brokers” produced in 2004 remain valid, but our new guidance goes into more detail,’ he said. ‘For example, we recommend that the request for information should relate to each separate class of insurance business and be sub-divided into information specific to each country. Also, we list all the many ways in which there might be a conflict of interest. ‘If there is a conflict, then the buyer may still choose to proceed, but he does so with his eyes wide open.’