Increased transparency and net quote system backed by leading industry execs

Their comments come hot on the heels of moves in the European Commission to re open discussions over remuneration of intermediaries that could lead to a set of pan-European rules to govern the corporate insurance sector as well as the high street market. Speaking at Airmic’s annual conference last week a group of industry big hitters said action is needed to weed out current bad practices amongst a minority of the broker community and deliver a level playing field for all intermediaries. There was general agreement, however, that the status quo will not change if left to market forces.hideIt seems therefore that the recently renewed desire of Michael Barnier, Member of the European Commission responsible for Internal Market and Services, to see action on the Insurance mediation Directive (IMD) that covers intermediaries, will be key to finding a solution to this issue. Mr Barnier said at the Insurance Europe (formerly CEA) conference in Amsterdam this month that he will issue a paper on broker remuneration, its transparency and disclosure by the end of this year. Conversations carried out by Commercial Risk Europe with risk managers, as part of our annual Risk Frontiers survey, suggest that whilst full transparency would be welcomed by most buyers, big changes to current practice is not a top concern among larger corporate insurance buyers. In general they seem happy to rely on the agreement of principles reached between FERMA and the European brokers’ federation BIPAR. It was designed to convince the Commission that no further action is needed on broker remuneration in this part of the market. However, according to the brokers that took part in the Airmic forum panel debate in Liverpool that there is reason to increase transparency. And those that took part in the discussion would support a net quote system in Europe. “The market is in a funny spot because there are a lot of people who make simply too much money out of clients and probably could not articulate what they are doing to earn that money. Those people are never going to cooperate with full transparency because they have far too much to lose…If the whole market would make a shift and everything went net, and we would just charge a fee, I would be entirely happy with that. I think it would flush out a lot of bad behaviour in the market but I don't think this is a view that would be shared by all people,” said David Ross, CEO, Arthur J. Gallagher International. “We are entirely relaxed with the idea of full transparency. If you can’t justify what you do for a client and explain the value you bring then frankly you shouldn't be representing them,” he added. This view was shared by JLT’s Mr Burke who called for net terms to deliver a level playing field for all brokers. Speaking to Commercial Risk Europe, insurers also expressed concerns over current market practices and backed greater transparency. Paul Lowin, Regional Commercial Manager, AXA Corporate Solutions (ACS) UK, said that generally brokers as individuals provide a high quality, professional service. “However, where I do have some concern is with the strategy some organisations employ to only talk to suppliers that are prepared to pay service fees or are members of ‘the club’. As a result this naturally restricts the markets open to their clients and as such cannot, in my own personal view, be of benefit to the end consumer,” he added. ACS UK CEO, Emmanuel Nivet, admitted to CRE that ‘from time to time’ his company could be in a better position in some lines if it paid more fees to brokers and believes that the brokers may have to change their model. “Probably the brokers have to reinvent their model because they will perhaps not succeed just by trying to increase their fees charged to insurers. But to realign the business model is not easy and will take time,” he said. “We want the brokers to be there of course but we also want our relationship with the client to be as close as with the broker because it is key. One question you have to ask is, if the brokers demand 2.5% more from the insurers will the customer receive a better service?” questioned the CEO. One problem for brokers is that they are currently having to replace fees that are, by all reports, reducing, said Mr Lowin. So they are seeking new ways to generate revenue to replace those fees, he explained. Both insurers on the Airmic panel debate, Robert Schimek, President and Chief Executive Officer of EMEA, Chartis and Carsten Scheffel, CEO Regional Unit London, Allianz Global Corporate & Specialty, agreed that more transparency is needed to ensure a fair price is paid for services delivered. “I am a true believer in brokers and their value but I think transparency is very important and very useful. I think that if you maximise transparency by definition you will settle on a price for their services that is fair for the insureds,” said Mr Schimek. But he argued that market forces alone will not radically change current practices. “I believe strongly that is not something that is ever going to cure itself. It will need some other help, and something better than what Spitzer tried to do. I don't think we are ever going to get out of this giant circle without that,” he said. Speaking exclusively to Commercial Risk Europe during the Airmic conference Mr Schimek explained further: “Whilst we have different rules for different brokers, or different rules for different tiers of carriers, I don't think you will get any real challenge to the current system. From my perspective I don't think you will ever get there with market forces alone, so an external body of some form is needed to help drive this process.” If some of the more murky market practices are to be eradicated, Mr Barnier’s promise to look once again at broker remuneration within Europe, which could result in a set of enforceable rules, therefore appears needed. Mr Barnier told attendees at Insurance Europe’s conference in Amsterdam that he wants a system that will ‘fully serve’ the real economy. A ‘crucial priority’ is the protection of investors and consumers of financial services, he said. The man from the EU announced three key initiatives to help achieve this aim. These are better protection for consumers of packaged retail investment products (PRIPS) through the introduction of harmonised and transparent information requirements, improved protection for those who invest in UCITS (Undertaking for Collective Investment in Transferable Securities, a type of collective investment or fund) and the creation of a ‘level playing field’ between the different providers of insurance products. “We think that each policyholder should be given the same level of information and protection, wherever they purchase their insurance guarantee. I will be submitting a text to Parliament and the Council that represents real progress in terms of transparency, including on remuneration, responsible risk management and removing conflicts of interest,” explained Mr Barnier.

Increased transparency and net quote system backed by leading industry execs

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