Insurance brokers have been attacked for “scandalous” conflicts of interests in a report published today.
Insurance brokers are appointed by clients to arrange coverage with insurance underwriters for which the client pays them a fee.
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However, the report from insurance policyholder advisers Mactavish estimated that up to 80 per cent of broker revenue comes directly from insurers creating a potential conflict of interest.
This problem is exacerbated in a so-called hard insurance market where premiums are rising as brokers often receive a percentage of the premium from insurers for services rendered in brokering the agreement.
The coronavirus pandemic, which Lloyd’s of London said would cost the insurance industry up to $200bn (£163bn), has sent premiums soaring in an already hardening market.
Mactavish said the problem of policyholders being denied coverage for business interruption claims was partly symptomatic of a broken brokering system which it said leads to over-standardised policy terms and a failure of policies to pay out.
Hiscox is facing legal action from policyholders over failure to pay coronavirus business interruption claims and today a group of hospitality industry businesses said they were targeting QBE and Aviva with claims.
The Financial Conduct Authority (FCA) published a market study on insurance brokers in February 2019 which concluded that new regulatory tools were not needed to reform the industry.
Mactavish said the report “contain lots of evidence of conflict concerns” and said: “The industry would therefore be wise to look beyond the headline of the FCA study and analyse how the hard market works to further ramp up conflict potential, before concluding that the FCA findings denote a clean bill of health.”
Mactavish chief executive Bruce Hepburn said: “The insurance sector is talking a lot about learning from the current crisis, and if they are serious about this they will address the scandalous broker remuneration set-up and the huge conflicts of interest it brings.”
A spokesperson for the British Insurance Brokers’ Association said: “Conflicts of interests will always exist in any intermediated sector which is why the FCA, requires and monitors that these to be managed which they are.
“The FCA examined conflicts within a thematic review quite recently and taking their findings into consideration we wholeheartedly dispute the issues raised by Mactavish in their report.
“Brokers have helped clients receive millions of pounds in claims payments since the beginning of the covid-19 pandemic and continue to act for their clients to get fair claims settlements.
“Given the highly regulated nature of the insurance sector, this report by Mactavish could be considered opportunistic and in light of their business model, designed to allow them to gain from these published opinions.”