Insurance brokers and agents have won another reprieve from disclosing the amount of commission they get for selling life assurance savings products and pensions. Consumers will now have to wait until at least March 2000 to find out how much of their premiums go towards their investment fund, and how much ends up in the insurance agent's or broker's pocket.
The latest delay stems from a problem in drafting regulations on the sale of insurance products which prevents the new rules from being included in the 1980 Sale of Goods and Supply of Services Act and coming into effect on September 1st, as originally intended. Instead, the regulations will be included in the Insurance Bill which it is hoped will be published before the Dail recesses for the summer.
A spokesman for the Department of Enterprise, Trade and Employment, which has responsibility for the insurance industry, said officials were still working towards the September 1st deadline although it would appear unlikely a Bill could be passed by then.
Even before the drafting problem emerged, the insurance industry had been granted a six-month delay to enable it to adjust computer systems for Y2K, before dealing with the system changes required by the new regulations.
"Consumers have waited long enough for disclosure of commissions. We'd be disappointed if there were any delay. We've been pushing for it for years," said Mr Fergal Barry-Murphy, finance researcher with the Consumers' Association of Ireland. "Until we get full disclosure of commissions, the consumer cannot make a clear, informed decision when choosing a policy. With agents tied to certain companies, if you don't know the commission, how can you tell if you're getting the best product or lining the agent's pockets?"
Commission disclosure is a controversial issue because of the negative effect commissions can have on fund values in the early years of a policy. Consumer groups have been pushing for years both for disclosure and for an independent regulator of the insurance industry, following revelations of mis-selling practices and "churning" in the early 1990s.
The insurance industry, however, has resisted telling clients the true cost of their policies, presumably fearing they may not be able to justify those costs if put to the test.
The Minister of State for Enterprise, Trade and Employment, Mr Noel Treacy, has also flip-flopped on the issue. In January 1998, he dropped a plan to disclose commissions from a draft regulation on the sale of life assurance. Two months later, he reversed his position, acknowledging consumers' demands for full transparency.
Disclosure of commissions is now part of a wider raft of regulations which will give consumers additional information at the point of sale so they can make an informed decision before buying an insurance policy. In addition to costs and charges, the regulations will include information on the underlying investment, complaints procedures, cooling-off periods and early encashment penalties.
Some of this information is already being provided to consumers. What is new is that the consumers will now receive tabular information showing - for each of the first five years and every five years thereafter - how much of their premium is being invested in the product and how much is going towards commissions and charges. The tables will also show how the various charges - such as set-up charges, administrative fees, fund management charges and commissions - affect the value of the fund.
The proposed regulations, which have only been released in draft form, have been broadly, if cautiously, welcomed by the industry. What remains to be resolved, however, is the controversial issue of commission disclosure, in particular how to ensure "equivalency" among the various parties that sell insurance products.
The Society of Actuaries is developing guidance notes that will provide a formula for calculating equivalent commissions among the various distribution channels, but brokers are concerned about what they see as inequities in the system.
Different distribution channels exist within the industry with insurance products sold by independent brokers, agents, tied agents, direct sales forces and the life assurance arms of the main two banks. Brokers argue that their commissions reflect their total costs, including overheads and marketing, as well as their profits. They claim these costs are not included in the commissions charged by tied agents, direct sales forces and the banks, but instead are hidden by the parent company in other charges. As a result, these intermediaries' commissions appear lower than those of brokers, putting the brokers at a competitive disadvantage.
"We support hard disclosure of all charges including commissions before, during and after a sale in relation to contracts with any investment return," said Mr Paul Carty, chief executive of the Irish Brokers' Association. "But we want everyone else to do the same, such as the banks. We don't want them hiding costs in any other area of the bank's activity."
The Professional Insurance Brokers' Association (PIBA) is also concerned about the lack of an authority to police the regulations and ensure equivalency among the various parties.
"We're not saying there will be a blatant abuse of the rules but there is wide room for interpretation," said Mr Diarmuid Kelly, secretary of PIBA. He fears the market may be polarised. "The average consumer will go towards the banks and direct insurers. Brokers will become more niche. That's not what we want to see."
Meanwhile, consumers who are considering purchasing a life assurance product before the regulations come into effect should insist that their broker or insurance intermediary reveal all commission and other charges, as well as their likely impact on the value of the fund for each year of its existence.
Consumers should also bear in mind that fee-based brokers are more likely to recommend products with low initial charges and no commission.
