Airmic has raised concern over conflicts of interest in brokers’ business models, calling for more transparency over how intermediaries operate and are remunerated.
In a report to be published later this month, Airmic urges buyers to ensure they better understand how their brokers are paid and asks the market to work with members to allay their fears.
The association flags potential conflicts of interest over broker remuneration, highlighting the use of facilities and broker relationships with certain insurers as key areas of concern.
As reported in this month’s Airmic News, the association wants buyers, brokers and insurers to work together to ensure its members get to see the full picture and have peace of mind when dealing with intermediaries.
The report warns that there is rising concern among Airmic members over broker remuneration agreements. Broker conflict of interest and remuneration models was a top three concern in Airmic’s latest member survey. The association explained that members are unclear about the growing range of services provided by brokers to insurers and how they are paid for this work.
The report – which is based on discussions with buyers, brokers and insurers – notes that as brokers look to deliver more on relatively static income from clients, there has been a shift towards increased remuneration from insurers.
“Throughout these changes, Airmic members expect complete transparency from brokers, as this is key to retaining and building trust with buyers,” the report explains.
It stresses that buyers are entitled to full information about the relationships between brokers and insurers.
Growing use of commoditised market facilities, through which brokers earn additional remuneration and insurers benefit from lower operating costs, is flagged as one potential area of conflict in the report. Airmic is “encouraging members to ensure they understand how insurers are selected and how the facility is tested against the open market”.
Georgina Oakes, Airmic’s research and development manager and one of the authors of the report, commented: “It’s really important that risk managers equip themselves with knowledge of what products other insurers offer that rival the facilities they are being recommended. They should make sure that these markets are being considered by their broker too and if not, why not.”
Strategic agreements between brokers and certain insurers is another concern raised in Airmic’s report.
“Brokers are unlikely, nor are they necessarily obliged, to share details on the sums of money paid by insurers for these relationships. We believe insurance buyers should identify which insurers their broker has these relationships with and – perhaps most importantly – which insurers their broker doesn’t have these relationships with,” said Ms Oakes.
Airmic is simply asking for transparency over any of these potential conflicts of interest and stressed that it has not taken a view on what business models brokers should or should not use.
“What we care about is whether our members have the full picture to help them understand where the risks of potential conflicts of interest might lie and how these are being managed,” said John Hurrell, Airmic CEO.
As well as calling on buyers to carry out due diligence on broker models and remuneration, Airmic wants all parties to work together to ensure its members get full disclosure.
“It is in the interest of all parties that insurance buyers feel comfortable both with their brokers’ remuneration methods and how they are communicated, and we are therefore confident that the market can work together to ensure complete openness at all stages of the buying process,” said Mr Hurrell.
The report outlines the main methods of broker remuneration and provides guidance on how to improve transparency, as well as advice on how to identify and resolve potential conflicts of interest.
The report advises on how insurance buyers can lead discussions on broker remuneration and provides a checklist of questions that buyers can use to structure these conversations.
Mr Hurrell also noted that while there are genuine concerns that need to be addressed, much of the research that went into the report sheds positive light on the insurance industry.
Airmic members will be able to download the Commercial Insurance Intermediaries – Transparency, Disclosure And Conflicts Of Interest report later this month from the Airmic website.