Spitzer - a slippery slope?

The Marsh/Spitzer scandal has all the signs of a bandwagon running out of control. UK provincial brokers might think they are gazing on this spectacle from afar - and might even be tempted to gloat at the misfortune of a global giant - but they could find themselves in this bandwagon's unpredictable path.

The Financial Services Authority cannot afford any form of institutionalised bad practice to escape its attentions. It could cope with an individual company breaking its rules and being appropriately reprimanded and punished, but any systemic mis-selling scandal would destroy confidence in the fledgling regulator and force a drastic legislative rethink. It seems impossible that the FSA will not be taking a very serious look at the whole gamut of 'contingent' commissions. But what does that mean? Just trying to draw up a definition is already tying the market in knots.

Consensus is emerging that accepts that volume-related commissions will fall foul of the new puritanism engendered by Eliot Spitzer's investigations.

Aon has made clear that it has not accepted them in the UK for several years and Willis quickly came clean and walked away at a global cost of $80m (£44.75m) a year.

But, a regulator looking for clarity while under pressure from politicians is likely to judge harshly any sort of incentive that could distort decisions against the client's perceived best interests. This will put in their sights many common practices in the broker market: advance commissions, marketing support, volume targets and so on, the very things that are the essence of the broker clubs that have revolutionised the insurer/broker relationship over the last decade.

Anyone operating schemes incorporating any of these features should be looking at them very hard and asking themselves whether they would survive scrutiny by an aggressive regulator stung into action by political, media and consumer pressure. It would be helpful if the FSA could provide some leadership on this but it is, so far, stubbornly refusing to do so.

One great irony is that the modern broker club concept was pioneered by Independent Insurance - hailed by many as its single lasting legacy to the market. It may turn out to be a poisoned chalice.