A unified response is the only way to meet the European Commission’s concerns, argues Nathan Willmott.

The insurance market has now had an opportunity to digest and reflect on the European Commission’s sector inquiry report into business insurance. The question that remains is what action insurers, reinsurers and brokers should be taking to address the concerns raised by the commission?

The two principal issues raised by the report were the alignment of policy terms where co-insurance and reinsurance is placed through the subscription market and potential conflicts of interest. These arise from the fact that many insurance brokers receive remuneration from their customers and also from the insurer or reinsurer with whom the business is placed.

If suitable (and visible) action is not taken by the industry to address the commission’s concerns then it is clear that enforcement action will follow, including dawn raids on various sections of the market.

It is perhaps unrealistic to assume that insurers and reinsurers are in a position to deal with these issues independently. Some may consider that changing their policies will leave them at a competitive disadvantage as against their peers who are yet to take action. As a result a collective and unified response from the industry is the only effective way of dealing with the commission’s concerns.

“If action is not taken, dawn raids will follow

Nathan Willmott Partner in the financial services and markets group, Berwin Leighton Paisner

A detailed response submitted on behalf of a collection of the insurance industry trade associations is likely to be the most effective way of taking the market’s response forward. If a unified approach amongst the trade associations could be found, then such action would have the benefit of putting forward views on behalf of the vast majority of the market.

Alternatively, the second approach could involve work led by the regulators – in particular, in the UK, the Financial Services Authority and Lloyd’s.

Both of the issues raised by the commission are capable of being solved by the large insurance and reinsurance brokers in practice. Plainly the brokers themselves are in control of their own remuneration arrangements and could either opt to change their position and/or do more to publicise the steps that are already being taken to ensure that potential conflicts of interest are managed appropriately and effectively.