The Financial Conduct Authority (FCA) today published the findings of its thematic review on conflicts of interests for insurance brokers and intermediaries in the small and medium enterprise (SME) commercial insurance market in the UK.

For the purposes of the review, which was launched in early 2013, the FCA reviewed a sample of medium to large intermediaries’ internal systems and controls, customer disclosures and a number of business placements during the second half of 2013 and early 2014.


The report did not identify any industry-wide failures but did identify that conflict identification and management practices, amongst the commercial insurance brokers surveyed, was variable; some brokers managed conflicts well, while others did not.

The report found that the evolving structure of commercial SME brokers inherently gave rise to conflicts.  There was a blurring of lines between, on the one hand, the traditional broker model as a policyholder advisor and, on the other hand, the “integrated” broker model in which a broker acts as an MGA or has an insurer “facility” arrangement. Those “integrated” broker firms were more likely to have inherent conflicts of interests. While management at brokers that operate entirely (or almost entirely) as traditional policyholder advisors had less risk of conflicts, they still needed to evaluate the risk of conflicts and take all reasonable action to manage those risks.

While the FCA is not proposing any immediate industry-wide action on conflicts (like amending ICOBS), it identified a number of areas for firms to consider when assessing their own conflicts managements systems and controls, including amongst others:

  • Brokers need to ensure that their policyholder clients understand and appreciate the capacity in which the broker is acting in relation to every transaction.
  • Senior managers must take steps to identify conflicts in their business model, deploy appropriate and effective safeguards to manage those conflicts and ensure the production and review of suitable quality management information to continually assess the sufficiency of those safeguards.
  • Where a broker operates as an “integrated” broker (ie activities for policyholders and for underwriters), senior managers must seek to ensure internal segregation of the operations, remuneration and information supporting and deriving from those conflicting roles to the greatest extent possible.
  • Disclosures to clients about conflict management is beneficial but senior managers must ensure it is adequate; in particular, generic disclosures were criticized by the FCA as insufficient.
  • Brokers must ensure that they can clearly and accurately demonstrate the independent basis on which they source and place business for their policyholder clients (ie that competing interests did not play any part in the placement of the business).
  • Disclosures to clients about conflict management do not discharge the broker’s regulatory conflict management obligations; brokers must still ensure that they have appropriate systems and controls to identify and manage conflicts.
  • The reliance by brokers on high level conflict mitigation principles, while commendable, should not be too great; brokers must ensure that those high level principles are manifested in appropriate procedures, controls and management information that show measurable client outcome.