The Competition Authority has refused to license the long-standing agreement on commission payments between life assurance companies and intermediaries who sell life products. The authority has ruled that the agreement was "a form of price-fixing and was anti-competitive and did not meet the criteria for a licence".
The agreement sets the maximum commission payments that can be made to intermediaries by insurance companies.
Welcoming the decision, the Consumers' Association warned that consumers and the industry would not benefit until the Department of Enterprise, Trade and Employment introduced compulsory disclosure of all commission payments. Expressing regret, the Insurance Industry Federation warned commission payments could increase as life companies competed for business. Higher commission costs would ultimately be borne by the consumer, it warned.
Accepting that commission payments may increase, Consumers' Association director Mr Eddie Hobbs last night warned consumers to insist on commission disclosure in writing from intermediaries before taking out life and pension policies.
Pressure for legislation to make the disclosure of commissions mandatory is now expected to intensify, so that consumer interests can be protected. Last month, the Minister for State for Enterprise, Trade and Employment, Mr Noel Treacy, defended a decision to drop commission disclosure from a draft regulation on the selling of life assurance. The Consumers' Association has consistently demanded full disclosure of all costs and charges.
An agreement setting maximum commissions and bonuses payable to life assurance intermediaries has been in place since 1987. Officially known as the "Agreement on Maximum Rates of Remuneration for Life Business", it was put in place by the life companies when they came under pressure to cut high commission rates or face statutory controls.
Under the current agreement, intermediaries are paid a maximum 50 per cent of the first year's premiums on new savings policies and pensions and 90 per cent on new protection policies. Intermediaries get 4 per cent of the annual premiums on renewals of policies. In effect, intermediaries are paid the maximum.
The commissions agreement is worth about £80 million a year to about 4,000 intermediaries who sell life assurance products, an average of £20,000 although there are huge differences in commission incomes between intermediaries.
In addition to commissions, it itemised and listed the bonuses that could be given to intermediaries such as corporate gifts, technology and entertainment. But the agreement had kept the industry fragmented because intermediaries were paid the same commission regardless of the quality of the service provided, Mr Hobbs said. It had prevented brokers from amalgamating because there was no advantage in achieving scale and it had slowed down the evolution of the industry, he argued. Describing its removal as "a huge watershed for consumers and for the industry", he said the Department "now has no choice but to immediately bring in compulsory disclosure of commissions".
The Irish Insurance Federation (IIF) argued that the agreement helped "create an orderly life assurance market and has actually reduced commission levels by setting maximum rates of payment". In a statement it warned: "It is to be hoped that Irish experience does not now mirror that of the UK, where an increase in commission levels followed the abolition of the commissions agreement."
The IIF maintained that a standard remuneration level meant intermediaries could remain independent between the products of different life assurers and not be influenced by the commission level when they recommended a product to the consumer.
Consumers would find it difficult to get independent advice because intermediaries would be unduly influenced by the size of the different commissions available, it suggested.
