By GRAHAM BUCK, who covers European risk management issues
LONDON---Recent European agreements have been mostly high-profile bailouts for the euro-zone's weakest members. However, the business
insurance sector has just recorded progress on an issue that has been festering for several years.
After nearly 14 months, the Federation of Risk Management Associations (FERMA) and the European Federation of Insurance Intermediaries (BIPAR) announced late last month a jointly developed "protocol" on the transparency of intermediation in business insurance.
In a joint statement announcing the agreement, FERMA President Peter den Dekker and BIPAR Chairman Jaap Meijers, said the protocol was intended to "underpin and enhance trust" for companies buying business insurance.
That was important, they also said, given that the "complex nature" of business insurance created potential for conflicts of interest and sometimes a lack of transparency.
"This is an excellent agreement as the level of transparency across the territories represented by FERMA members is variable and, in many cases, not meeting buyer requirements," said John Hurrell, chief executive of the U.K.-based Association of Insurance and Risk Managers (AIRMIC).
"It brings the recommended standard for disclosure up to the level we have enjoyed in the United Kingdom in the last few years, where buyer satisfaction levels on this issue were shown to be much higher in this recent survey," he said. "The new agreement will be helpful for U.K. buyers who have multiple broker relationships in different European territories."
However, Adrian Clements, general manager, asset risk management, for Luxembourg-based steel-producing giant ArcelorMittal, is less impressed. He suggested that there are two issues that "cut to the heart of what intermediaries should provide for clients"--but neither is covered by the protocol.
"Firstly, there is a tendency to go for the simple and traditional rather than the right solution, and this is not highlighted in the agreement; and secondly, I hire an intermediary because of his skills, ability to offer a correct analysis of my needs, and not the market's and his potential claims-handling skills.
"This agreement covers mainly payment structures and their transparency, which, depending on your yardstick, can either be OK or not. I have high expectations, which have not been fulfilled regardless of payment transparency."
The terms of the protocol offer FERMA and BIPAR member associations a framework for guidance on remuneration in their respective countries. The principles are that brokers should identify, manage and mitigate any potential conflict of interest and be open about the services they are providing.
Clients are entitled to full disclosure as to whether this remuneration is fee-based or commission-based, the actual amount involved, and whether their broker receives any payment from the insurer that relates to the business insurance contract in any way.
NO LEGAL FORCE
Whether the protocol succeeds in this aim remains to be seen. The agreement establishes principles but has no legal force, and it is also less applicable to small and midsize businesses; most of FERMA's national association members represent major businesses.
It also comes ahead of the European Commission's update of the Insurance Mediation Directive (IMD). The initial version of the IMD, which aims to create a single market for insurance through a "passport" for brokers in the European Union, led to U.K. brokers being regulated by the country's Financial Services Authority (FSA) watchdog.
Although FERMA would like to give the protocol legal bite and apply to more companies, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has recommended that the commission exclude the large commercial and reinsurance markets from the new version of the IMD. The issue will be the subject of a public hearing in Brussels later this week.
The FERMA-BIPAR agreement was a long-time coming itself. When European risk managers gathered in Prague in the fall of 2009 for FERMA's biannual conference, broker remuneration was high on the agenda.
Given that the conference theme was the future of risk management, one might have expected this long-running issue to be of a lower profile. A settlement by the Illinois attorney general and the Illinois Department of Insurance in July 2009 to allow Arthur J. Gallagher & Co. to accept contingent commissions once more, however, pushed the issue firmly back into the spotlight.
FERMA, which represents 20 associations in 18 countries, had campaigned for brokers to give up contingent commissions and for full transparency on compensation. FERMA said that it was worried that the Illinois authorities' decision gave the "big three" of Marsh, Aon and Willis the green light to follow Gallagher.
At Prague, den Dekker told delegates that the organization would work with the European Federation of Insurance Intermediaries, toward an agreement on broker remuneration. BIPAR, established in 1937, represents 46 national associations in 31 countries.
December 6, 2010
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