Insurers seek code of practice to eliminate broker `inducements'

Insurance companies are trying to agree a code of practice which would outlaw extravagant inducements for brokers, according to draft documentation seen by The Irish Times.

The move follows growing concern within the industry about the increasing competition between companies on broker entertainment and the negative effect on companies of publicity about these foreign trips.

Among the more lavish broker entertainment was an Irish Life four-night trip for 43 brokers and their partners to South Africa last month which cost the company about £500,000. Hibernian took 24 brokers to Brazil for 12 days and other companies have taken brokers to Portugal, France, the UK, Scotland and other foreign destinations.

Through their industry association, the Irish Insurance Federation, insurance companies are now trying to establish criteria for broker entertainment. However, with entertainment used as a competitive tool to win business for brokers the companies have to ensure that any action they take is not illegal under Competition law following the removal of the cap on commissions. According to the draft "IIF Code of Practice on Intermediary Incentives" an insurer may provide an insurance broker or insurance agent with business assistance, education, entertainment and promotional gifts "the costs of which do not exceed modest business expenditure".

The document goes on to say: "An insurer may not:

participate in the organisation, promotion or funding (either in whole or in part) of any social, (educational?) or sporting event held outside Ireland; nor

attend a social, (educational?) or sporting event held outside Ireland where the main participants attending the event are insurance brokers or insurance agents."

The document goes on to define modest business expenditure as: "(a) any bona fide training programme designed to improve business performance, whether directly or indirectly related to the insurer's own products, provided such training takes place in Ireland;

(b) organising, promoting, funding or attending social or sporting functions in Ireland;

(c) provision of computer software to generate quotations for the insurer's products, or the supply of computer hardware or other software at cost;

(d) provision of promotional gifts up to a maximum value of E * p.a. for any one insurance broker or agent; *maximum amount under IIF Life remuneration Agreement (1/1/94 to 23/3/98) was £100.

(e) payment of reasonable travel and accommodation expenses in conjunction with programmes or functions as described in paragraphs (a) and (b) above, provided that accommodation is provided for a maximum of (two?) nights in any calendar year for any one individual.

Insurance companies compete for business from brokers whose role is to advise and place clients' business with the insurer best suited to the client needs. Under their voluntary code of practice, brokers have a duty to act in the best interest of their clients. An industry source interpreted this as a duty to give the best advice possible to clients regardless of the remuneration or inducements offered by insurers.

But some industry sources have expressed concern to The Irish Times that some trips for brokers amounted to "extravagant entertainment" and could be seen as compromising the independence of the advice brokers gave to their clients and driving up the price of insurance products.

An IIF spokesman confirmed that the issue was "under active consideration", adding that the IIF was aware of possible competition issues.