The MGAA has announced details of feedback it has received from the FCA as a result of its lobbying of the regulator in relation to multi-occupancy buildings insurance commission disclosures. The purpose of the rules on multi-occupancy buildings insurance are to improve transparency in relation to charges (including commission and fees paid to an intermediary) for insurance which are passed on to and paid by the leaseholders as part of their tenancy or lease charges.
Key points to note and next actions – MGAs
The FCA multi-occupancy buildings insurance disclosure requirements capture insurance intermediaries.
They were perhaps aimed at intermediaries who are involved in a distribution chain rather than intermediaries which are MGAs, which for much of their work (particularly in relation to these insurances) would typically see themselves as representing insurers and being outside of a traditional distribution chain. All insurance brokers are insurance intermediaries, but not all insurance intermediaries are insurance brokers. There is no separate definition in the FCA Handbook between an insurance broker and an MGA – they are both insurance intermediaries, so the ICOBS 6A.7 rules, as written, include MGAs.
In what appears to be a welcome addressing of an unintended consequence, the FCA has clarified that the multi-occupancy commission disclosure rules at ICOBS 6A.7 (specifically, ICOBS 6A.7.3 R (2) (c) and ICOBS 6A.7.8 R) do not apply to managing general agents (MGAs) when carrying out work as agent of an insurer under what are known as ‘work transfer’ arrangements. Such arrangements are, in essence, outsourced arrangements where an MGA will carry out work on behalf of an insurer preparatory to the effecting of the insurance contract, for which the MGA is paid by the insurer by means of a commission or commission-type remuneration.
Therefore, the FCA has now clarified that, in its view, it is the remuneration that relates to the placement of insurance by the insurance broking intermediary that is subject to disclosure. It does not see the rules applying to any remuneration to the MGA for ‘work transfer’ from the insurance company.
There is a caveat that the business is introduced to the MGA by an insurance broker who is being remunerated for the work doing so. Assuming that this is the case, the FCA’s view is that the MGA is acting as agent for, and undertaking the work of, the insurance company and is not subject to the commission and fee disclosure rules in relation to this work.
Therefore, where an MGA is:
- distributing multi-occupancy buildings insurance on behalf of an insurance company; and
- selling that product only to policyholders who are themselves represented by a regulated insurance intermediary as part of the overall distribution chain;
then the FCA’s general position is that the provisions contained in ICOBS 6A.7 do not apply to the MGA in respect of its earnings for the work transfer from the insurance company.
The MGA sector cannot, though, escape its responsibilities in ensuring that it provides fair value for the money it is paid for the work that is ‘transferred’ to it by insurers. Ultimately, it is the policyholder or (in the case of multi-occupancy buildings insurances, almost always) the tenant or leaseholder which is paying the MGA, albeit indirectly, for the work it is doing. All of that ‘work transfer’ payment comes from the person paying the premium at the end of the line.
Key points to note and next actions – insurance brokers
In light of the above, any MGAs (certainly those who are MGAA members) who are providing information to the customer-facing insurance broker in relation to remuneration are very likely not to include details of the remuneration they receive for carrying out this ‘work transfer’ activity on behalf of the insurer.