Ferma seeks agreement on contingent commissions

The Federation of European Risk Management Associations (Ferma) intends to reach a deal with BIPAR, the European Federation of Insurance Intermediaries, on contingent commissions before the end of next year.

Peter Den Dekker, president of Ferma, said that securing a deal for active transparency, so that buyers do not have to ask for information on the types of commissions that insurers pay to their brokers, would be one of his key objectives during his two year term.

Contingent commissions are paid by insurers to brokers based on the volume of business that they pass on—they are regarded by many as introducing huge conflicts of interest.

'We would like to know if a broker receives contingent commissions and from who they receive them and on what basis they receive them,' said Den Dekker, speaking at his first Ferma Forum at the helm of the European association.

Risk managers want clear, independent advice that they can trust, he said. Armed with this information risk managers will be in a better position to make informed decisions about where they place their business, added Den Dekker.

At this stage the association is not in favour of an outright ban on these types of payment. Although an unscientific show of hands during the plenary session at today's Ferma Forum (Tuesday, October 6) revealed that around two thirds of the audience was in favour of an outright ban.

During the session a panel of risk managers discussed the topic. Maurizio Micale, corporate risk management and insurance director of Italian multinational STMicroelectronics said: 'Brokers need to review their business models.' He sugested that some of them have become over reliant on these types of payment.

Many risk managers are concerned that by removing a revenue stream altogether, which some brokers have come to rely on, could lead to problems and a reduction in the levels of service that they have become used to.

The income from contingent commissions has allowed brokers to offer services, like claims handling and risk engineering, to both insurers and risk managers. The payments may also have helped them pass on reductions in the fee that a risk manager client pays.

Stefan Sigulla, another member of the Ferma board of directors, commented: 'We cannot accept that there is no transparency.' Although he also suggested that the conflicts of interest can be successfully managed.