|Lloyd's joins chorus for greater disclosure|
By Andrea Felsted and Henry Tricks
Published: October 22 2004 20:06 | Last updated: October 22 2004 20:06
Lloyd's, bedrock of the London insurance market, on Friday added its voice to calls for greater disclosure of insurance commissions in the wake of a US investigation into corruption and conflicts of interest in the industry.
It is understood Lloyd's would support any moves by the Financial Services Authority, which takes over regulation of the general insurance market in January, to force brokers automatically to disclose to their customers the brokerage and commissions they earn from arranging insurance for them.
Nick Prettejohn, chief executive of Lloyd's, said yesterday: "Lloyd's strongly supports the maximum possible disclosure and transparency for all commission arrangements."
The way insurance brokers make their money was thrust into the spotlight last week when Eliot Spitzer, the New York State attorney general, filed a lawsuit against Marsh & McLennan, the world's biggest insurance broker, accusing it of corruption and anti-competitive practices. No Lloyd's brokers or insurers are mentioned in any of Mr Spitzer's investigations.
Meanwhile, lawyers said UK corporate policyholders might take legal proceedings against insurance companies or brokers if Mr Spitzer's investigation spread to London and there was evidence of wrongdoing. There is no sign of this at present.
"UK plc ought to be watching quite closely to see whether it has been paying more for its insurance than it should have done," said John Magnin, head of litigation at Nicholson Graham & Jones in London.
"If it does develop into something broader, there's the possibility of private legal action, including [action by] major corporations who can afford to pursue litigation."
At the heart of the lawsuit filed by Mr Spitzer are placement service agreements, or contingent commissions effectively bonuses to brokers for selling high volumes or more profitable products. These also feature in the London insurance market.
Under the present arrangement there is no requirement for brokers automatically to disclose their brokerage and commission to the customers. But they have a duty to tell their customers what they are charging if asked.
Lloyd's, it is understood, would support any moves to take this a step further by making it a requirement that brokers should automatically disclose brokerage and commissions.
The Financial Services Authority said there were no plans to change the rules.