Shane Ross

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Driving Competition in the Insurance Industry

Posted on: February 25th, 2004

I am concerned that when the Competition Authority, having thrown questions into the public arena, makes its recommendations on insurance brokers, it will be ignored because of strong political lobbying in this House and the Lower House.

Is there any need for insurance brokers at all? Can we do without them? This is the fundamental question which the Competition Authority did not address. Senator O’Rourke last week told the House that she had telephoned various companies when renewing her car insurance. By doing so on her own, she managed to reduce her premium by €200. Do insurance brokers do this? Consumer inertia is the greatest benefit for the financial services industry.

The most tangible item in the report concerns the commissions from which brokers earn their money. A simple question must be asked. Why in God’s name do brokers not put the commission charged on every bill sent to a customer? I was a stockbroker once. On every contract sent out, people were told how much we were ripping them off. People could at least see the amount paid on stamp duty, VAT and the brokers’ commission. It also allowed them to complain.

Insurance brokers do not inform consumers how much they are charging and they get away with it. It is indefensible, particularly with cosy payments from insurance companies to brokers, that large bills go out from insurance brokers that do not inform the person involved how much he or she is paying in commission.

It begs the question: what would happen if the brokers were not there? It is unarguable that, as commission would not have to be paid by the insurance companies, the cost to the consumer would be cheaper. Insurance brokers must justify what they are doing, but by refusing to let one know what one is being charged, they cannot do so.

Almost all insurance brokers earn their money from percentages, not from fee-based commissions with the result that their incomes have rocketed as premiums rose. They are doing just as much or as little work as they ever did yet are benefiting by the increase in value of the assets and the penal premiums and doing nothing extra to earn that, which cannot be justified. I query whether it is right that auctioneers, stockbrokers, lawyers and insurance brokers should be paid on the basis of percentage commissions. The report highlights the fact that because insurance brokers benefit from commissions it is in their interests to see that premiums are high. How can they act in the interest of the customer if they receive money for a higher premium?