global insurance management

Disclosure to Commercial Clients

Mar 26 2012

Disclosure to Commercial Clients

Relevance:                   All firms selling commercial insurance.

Action required:           Review your procedures to address the ‘transparency, disclosure and conflicts of interest’ issues identified by the FSA.

The FSA has shown consistent concern about “transparency, disclosure and conflicts of interest in the commercial insurance market”. They like to look at “outcomes” and have said that Commercial Customers should:

  1. have clear and comparable information about the commissions intermediaries receive;
  2. have clear and comparable information about the services intermediaries are providing;
  3. have clear information about the capacity in which an intermediary is acting;
  4. be alerted to their right to request commission information; and
  5. be made aware where there is a chain of intermediaries

BIBA were involved in developing ‘guidance’ aimed at enabling firms to achieve these outcomes. This was given the status of “confirmed guidance” by the FSA in March 2009, valid for 3 years, which has now been renewed for a further 3 years.

There were no new rules published and, while the FSA has urged firms to consider using the Industry Guidance, you will not breach any FSA rule if you choose not to use it. So, there are still two options:

•           Follow your own procedures to achieve the 5 outcomes; or

•           Adopt the Industry Guidance.

There are two elements to the guidance:

  1. a standard form for the client confirming, in respect of each policy arranged, the capacity in which the firm was acting at certain points in the transaction, the range of insurers approached and the client’s right to ask about the firm’s earnings;
  1. a standard response form for any client that asks about the firm’s earnings (which looks like a perfectly sensible way of achieving outcome 1 so we would urge firms to adopt it).

Item 1 presents more of a problem as it seeks to improve client awareness by giving them more paper. Many firms believe that clients do not read the disclosure documentation already sent so adding more paper to the process may not be a solution. This seems to be one of the key reasons for firms not using the guidance as published.

However, there are some options that can achieve the required result without adopting part 1 of the guidance, if it does not suit:

  1. for single policy commercial clients, existing standard letters can be adapted to include the information needed;
  2. your Terms of Business (TOBA) should already include confirmation that the client can ask about your earnings (Outcome 4);
  3. your TOBA can be adapted to include information about the capacity in which you act (Outcome 3).
  4. Information about the range of insurer approached can be built in to your TOBA for some transactions or dealt with in the confirmation letters or New Business/Renewal report if appropriate (Outcome 2);
  5. Information about chains should be provided as a matter of course in your confirmation letters (e.g. cover placed with ABC insurer via XYZ Broker) thus dealing with outcome number 5).

The point is that greater client awareness can be achieved by adapting what you already provide without using additional documents. It is for firms to decide whether to adopt the guidance or tackle the issue via a different route.

The Industry Guidance can be viewed at

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