Reinsurers may have a lesson or two to learn from the world of equities trading
As this month’s cover story shows, a war of words is raging between large brokers and smaller independents about who can best serve clients. But a particularly interesting shot was fired in the debate: one source suggested that brokers with stockmarket listings are only serving their shareholders, leaving clients as second-class citizens.
This raises an important question: how do you tell if your broker is acting in your best interests? Perhaps the reinsurance market can learn something here from the world of equities trading.
Back in November 2007, the European Commission brought the Markets in Financial Instruments Directive (MifId) into force, which enshrined in regulation the concept of ‘best execution’ – that the stockbroker trading shares on behalf of a client must achieve the best possible outcome for the client.
The concept is not confined to simply achieving best price. For example, a client may simply want to sell shares as quickly as possible, irrespective of price. MifId also requires brokers to demonstrate to clients on request that they have made every effort to achieve their desired result.
Such a concept could easily be extended to the insurance and reinsurance industries. There are many parallels with Mifid’s concept of best execution. For example, cedants are not necessarily always looking for the cheapest reinsurance programme but the one that most adequately covers their risks.
(Re)insurance brokers could easily argue, as some stockbrokers did, that such a regulation is superfluous because they already make every effort to ensure they get the most appropriate deal for their clients. After all, a broker not doing this would surely lose business rapidly. Also, the burden of compliance could be onerous.
But such a regulation could help silence the nagging voices in clients’ heads that the brokers are in it more for themselves.
Ben Dyson, assistant editor, Global Reinsurance