Impractical purity or uncomfortably rigorous transparency?

John Humphrys of Radio 4’s Today programme cynically laughs that the art of communication is “to over-simplify and then exaggerate”. This struck me while reading Tony Cornell’s otherwise excellent article on Conflicts of Interest (www.insuranceage.co.uk/2402096  ). He is right that the principal should not be the adviser and the adviser should not be the principal. However, he concludes “the public would be far better served if insurers were just insurers, brokers kept to broking… everyone would then know exactly who did what without the market being distorted”. 

This ignores the uncomfortable fact that in general insurance intermediation everything is paid for by commission from insurers, and therefore there is no true independence to begin with. 

It also ignores the fact that insurers delegate swathes to managing general agents (MGA), claims management companies and lots of other third parties, particularly in the personal lines and SME space. 

For their part brokers hold delegated underwriting authorities which supposedly just aid efficient distribution but can allow net rating, commission optimisation and profit commission. 

And when a policyholder has picked their insurer, any claim may well be handled by the same claims management company as those of other insurers.  

Yet, perversely, areas of perceived greatest conflict provide real benefit to policyholders. Why is it assumed that good products automatically originate with insurers? Many of the best sit within delegated authorities in broker-owned MGAs. Photographers say that the specialist product from Towergate Underwriting is stand-out, as is the tanker product from Pen Underwriting for that sector. Everyone admires the professional indemnity products from Dual. These MGAs have real expertise, cost efficiency and distribution and are of significant scale. 

The same occurs with claims management. Do insurers provide the best here? Cunningham Lindsay or Direct Group might have some views on this.

It is not a simple market with simple players and conflicts just from who owns what. Commission distortion can happen throughout, including by the practices of insurers. The scale of insurer delegation of authority needs to be acknowledged and openly discussed. 

Do we want to pretend to impractical purity or rather promote uncomfortably rigorous transparency?”