INVESTORS in life assurance and pension products stand to get better value from their investments as the result of a ruling by the Competition Authority. This is expected to prohibit a long-standing agreement on commissions between the life assurance industry and insurance brokers.
So far, the authority has only said it is considering withholding a licence for the agreement and has given interested parties until next Friday to make final representations.
If the authority does prohibit the agreement on commissions, it will revolutionise the way life and pension products are sold, About 4,000 brokers are involved in selling life-assurance and pension products and are thought to have received commissions of £80 million last year.
If the Competition Authority does declare the commissions agreement illegal, it could mean more competitive rates for consumers or a better return on their investments. Less of their money will be tied up in commissions to insurance brokers and fees for the insurance companies, and more put directly into investment funds.
The Irish Insurance Federation, however, has warned that commissions paid to brokers may rise as the insurance companies try to attract increased business from the brokers. This has been strongly rejected by the Consumers Association of Ireland, which last July lodged a formal objection to the commissions agreement with the Competition Authority.
The CAI claims the agreement is a form of price-fixing and has been used to prevent full disclosure of all charges. According to the CAI chairman, Mr Peter Dargan, "the agreement has encouraged consensus marketing by the industry and has diluted innovation and competition".
The authority has stated publicly that as a result of an initial assessment, which has been seen by The Irish Times, it intends to refuse to issue a certificate or to grant a licence to the Irish Insurance Federation's Agreement on Maximum Rates of Remunerations for Life Business. Without such a licence, the commissions agreement would be void.
Industry sources believe a commissions free-for-all could be inevitable if the current agreement is deemed illegal. This could mean that insurers with a low cost base would be able raise commissions to attract business from brokers-, but other insurance companies with higher costs would be forced into lowering commissions to the intermediaries.
The different levels of commission for brokers and start-up fees levied by the insurers themselves will put pressure on the Department of Enterprise and Employment to ensure full disclosure to the consumer of all commissions and charges at the point of sale.
Full disclosure would allow consumers to identify whether the total amount in charges being taken from their premiums - commission and other charges - represented good value in comparison to the amount being deducted by other companies. In this situation, the consumer is the winner.
A major rationalisation among the intermediaries is also expected, with fewer, larger and better resourced intermediaries being created as the smaller, less efficient brokers are squeezed out of the market.
An IIF spokesman said a detailed account in support of the agreement had been sent to the authority and that, in the absence of any decision, the federation was reluctant to make any further comment.
Mr Paul Carty of the Irish Brokers Association, whose members operate under the terms of the commissions agreement, said it would be sending a submission in support of the agreement to the Competition Authority before the April 4th deadline.