Lloyd's calls for more disclosure of insurance commissions

Lloyd's, bedrock of the London insurance market, yesterday added its voice to calls for greater disclosure of insurance commissions in the wake of a US investigation into corruption 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 to disclose to their customers the brokerage and commissions they earn from arranging insurance for them.

Mr Nick Prettejohn, Lloyd's chief executive, said: "Lloyd's strongly supports the maximum possible disclosure and transparency for all commission arrangements."

How insurance brokers make their money has been thrust into the spotlight after Mr 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 behaviour.

No Lloyd's brokers or insurers are mentioned in any of Mr Spitzer's investigations.

Lawyers said yesterday that 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.

At the heart of Mr Spitzer's lawsuit are placement service agreements, or contingent commissions, effectively bonuses to brokers for selling high volumes or more profitable products, which are also a feature in the London market.

Lloyd's believes the disclosure of brokerage and commissions is catered for by rules set by the General Insurance Standards Council, the self-regulatory body due to be replaced by the FSA on January 14th, and the requirements of agency law.

But it would support any moves to remind brokers of their responsibilities to disclose what they earn to customers, and also taking this a step further by making it a requirement that brokers automatically disclose brokerage and commissions.

Meanwhile, Marsh & McLennan shares rose nearly 5 per cent yesterday after suggestions there could be changes in the group's management.

Investors said late this week there was speculation that chief executive Mr Jeffrey Greenberg's departure from the group could be imminent.

Outside directors of Marsh & McLennan have also talked to Mr Spitzer about having Mr Greenberg step aside, the Wall Street Journal said yesterday. - (Financial Times Service, Reuters)