October 2006

In search of efficient, orderly and fair markets.

This was John Tiner's theme when he gave a lunchtime lecture to the Insurance Institute of London on 2 October. He devoted most of his time to two current FSA priorities for wholesale insurance: contract certainty and commission disclosure.

On contract certainty, the message remains that good work has been done by the market towards meeting the original contract certainty "challenge", but the pressure has to be kept up over the final few months. And there are three areas where further work is needed:

• data quality, so that firms can demonstrate both that they are achieving contract certainty and that they have systems and controls in place so that they can challenge and support the data being presented to the market;
• legacy issues - tidying up the back book;
• a continuing focus on the policies that do not achieve contract certainty, "assessing the value and complexity so that lessons can be learned and necessary improvements made".

There is also some concern over progress by smaller brokers, particularly outside the London market.

John Tiner confirmed that contract certainty will be a supervisory priority for 2007, and firms that lag behind "will feel more heat from us through the full range of regulatory tools, including through enforcement and the use of section 166 reports where necessary".

On commission disclosure, the speech displays continuing frustration that commercial buyers are not using effectively their right to request disclosure; and, more worryingly, notes that when disclosure is sought, there is little consistency in what is disclosed, with not all brokers including, for example, commission from profit shares or payment from premium finance arrangements. The speech also reflects on the inherent conflict between the underwriting and broking communities in relation to commission disclosure. Given this conflict, it is perhaps not surprising that a market solution shows no sign of emerging, and the FSA accordingly propose to undertake next year a market failure and cost benefit analysis, to inform further consideration of whether commission disclosure should be made compulsory as a regulatory matter, if the market is unable to come up with an industry-led solution.

John Tiner Speech