New curbs on insurance firms, agents

INSURANCE COMPANIES will be banned from terminating appointments with financial intermediaries based solely on intermediaries failing to meet target levels of new business, a report by the Financial Regulator and an industry working group has decided.

A report published yesterday by the Financial Regulator found that there was a “conflict of interest” in cases where intermediaries were required to generate a minimum level of new business from clients in order to retain the right to sell the products of a particular insurance company.

The practice has been justified on the basis that insurance providers incur an expense in providing insurance brokers with ongoing support services. But critics said the system increased the risk that consumers would be recommended an unsuitable product by a broker who needed to boost new business figures in order to continue a relationship with an insurance company.

In a widespread review of the broker market, the working group has recommended specific criteria that must apply whenever intermediaries use the terms “broker” and “independent” so as not to mislead consumers.

There will be an obligation on non-life insurance intermediaries to disclose their remuneration arrangements with product providers in general terms and that, prior to the sale of a product, they should either inform the consumer of the amount of commission they have received in respect of the sale or make that information available on request.

The Financial Regulator’s consumer director, Mary O’Dea, said the recommendations were designed to create more market transparency. They will be implemented when the Consumer Protection Code is reviewed next year.

Canice O’Reilly, the president of the Irish Brokers Association, welcomed the report, saying brokers were “quite prepared” to disclose commissions to their customers on request.

“It is unfortunate that there is still no requirement on the part of insurance companies to disclose the corresponding cost of their direct distribution operations.”