TR14/9 - Commercial insurance intermediaries - conflicts of interest and intermediary remuneration

This report summarises the findings of our thematic review which looked into whether insurance intermediaries serving small to medium-sized enterprises (SMEs) are able to effectively identify and mitigate conflicts of interest arising from their remuneration structures.

Who should read this paper?

The report is aimed at general insurance intermediaries, insurers, relevant trade associations, representative groups for business and consumer bodies. It should also be of interest to owners and managers of SMEs.

Thematic Review TR14/9

What was the scope of the review?

Our review looked at a sample of large intermediaries, considering how their business structures and the remuneration they receive could create conflicts of interest that work against the best interests of customers. We also carried out consumer research to understand SME customers’ expectations of the services intermediaries provide to them.  

What did we find?

We found a number of issues and unmitigated conflicts that could result in intermediaries prioritising their own interests over those of their SME customers. These included:

  • The structure of some intermediaries’ businesses and sources of revenue created significant conflicts of interest, particularly where firms or groups fulfilled multiple roles in the distribution chain and acted as agent for both the customer and insurer in the same transaction.
  • In some intermediaries the control framework and management information have not developed in line with changes in the business model, and were therefore no longer suitable for the size and complexity of the business.
  • Many intermediaries relied on disclosure as the main way to address conflicts of interest rather than having effective control frameworks that prevent conflicts of interest working against customers’ interests.

Our research suggested that many SME customers do not fully understand the role being performed by their intermediary and how this might have changed in recent years.  Many customers still perceive their intermediary as an independent advisor working as their agent and seeking quotes from a number of insurers, even where this may not be consistent with the nature of the relationship described in the disclosure that they had received.

What are the next steps?

We are taking the following actions as a result of our findings:

  • Supervisory engagement with the firms involved to address specific issues identified, using the full range of regulatory tools available to us as appropriate.
  • Providing this feedback to the wider industry to illustrate potential shortcomings with existing approaches to managing and mitigating conflicts of interest and engaging proactively with the industry to enhance understanding of our rules and expectations, via industry forums and trade bodies.
  • Providing further information and education to SME customers highlighting our findings and their rights.
  • Feeding our findings into our planned thematic work on commercial claims.

We expect all general insurance intermediaries to reflect on how they manage the conflicts of interest arising within their business model in the context of our findings and concerns set out in our review, and to make any necessary changes required to ensure that they are complying with the existing regulatory requirements in this area.

How can I find out more?

Press release: FCA calls on insurance intermediaries to better manage conflicts of interest when dealing with small business clients

What does the future of insurance broking look like?