Holding renewals - Terms of endearment

This is one of the issues highlighted as part of the Financial Services Authority discussion paper, Reviewing Commission Disclosure for Commercial Customers. Its research has indicated that such customers routinely over-estimate the amount of market analysis carried out by intermediaries at renewal - as well as underestimating the level of commission earned - and the feeling is that, where you take a decision just to invite with the holding insurer, you should advise the customer that you have only considered a single provider.

I realise that an argument could be put forward that you carried out a full broking exercise a year ago that led to the selection of the policy and that your expert interpretation of the current market is that things have not changed, so your advice is still based on a range of insurers. However, in reality the FSA is likely to require more concrete evidence.

Perhaps the question should be whether or not it would make any difference to the customer if you told them that, in your opinion, the market has not altered significantly and that this is the reason that you are recommending renewal with the holding insurer?

As this is, in effect, the reasoning behind your decision, any reluctance in such transparent disclosure of the actual service you are providing relates to a much bigger issue that will become far more important if mandatory commission disclosure is introduced: the ability of brokers to sell their own service.

It is quite possible that, where a commercial customer is advised of the level of income that you are taking from their business, they will question if a lower rate is acceptable; at that point it is imperative that the customer knows all of the things that you do for them. From using your expert knowledge to advise on their requirements to checking insurer documents, claims assistance, answering queries and using your knowledge again at renewal, brokers will need to explain their worth if they are to move into an era of transparency and greater reliance on fees as true professional advisers to commercial businesses.

Jim Dart, compliance director, RWA Group.