Irish Life Assurance has opened up a can of worms. It has planned a £500,000 junket to South Africa for 43 insurance brokers, and their partners, just as the Insurance Ombudsman investigates complaints by 14 of its policyholders. The plan to have the junket indicates an insensitivity to a public sceptical about the industry, but, more importantly, it is hardly in line with the spirit of best practice.
Insurance brokers will come under the supervision of the Central Bank on April 1st. Importantly, under the bank's code of conduct such inducements are likely to be prohibited. In an unpublished response to the Consumers' Association of Ireland's expressed concern about the proposed payment, the Central Bank has issued a telling statement. It said its code of conduct "effectively prohibits significant inducements. The rules require all firms to take reasonable steps to ensure that no inducements are accepted if they are likely to conflict with the firm's obligations to act in the best interests of its clients. These requirements ensure that there is no question of compromising the integrity of independent advice".
Mr Patrick Neary, head of securities and exchanges supervision, in the letter to Mr Michael Kilcoyne, chairman of the association also said the intermediaries (investment groups, stockbrokers, money brokers etc) which it now supervises can be prohibited from accepting inducements. These rules are expected to also apply to insurance brokers when they come under the bank's wings on April 1st. Regrettably the Central Bank has no statutory powers over the brokers until then. However, the Department of Enterprise Trade & Employment, is the ultimate supervisory body for the insurance industry and it has to be asked: does it condone such practices?
Irish Life is already under pressure about review clauses in open-ended life protection policies sold to the complainants and branded under the misnomer of "Lifesaver Plan" life policy. Under a recent review by Irish Life one in five of these policies required an increase in premium payments, or a reduction in cover.
The cover was guaranteed for 12 years but clients were told in the sales literature that premiums might have to be increased to maintain the cover after the period. Sold in the 1980s, they were meant to be reviewed after 12 years but were not reviewed until 2000 and some of the funds ran into negative value. This is the subject of the complaint to the Insurance Ombudsman.
While Irish Life contends it is in the right, the complaints do not help the perception of the industry. Indeed the industry, which in the past has invariably been able to point to the small print to defend its "right" under its contracts, needs to come under more scrutiny.
Other sectors have come under the microscope. Accountants, for example, have been roundly criticised for their failure to identify and report on tax evasion and fraud highlighted by the DIRT inquiry. This has resulted in a decision by the Tanaiste, Ms Harney, to set up an eight-member statutory body, with no more than two accountants, to monitor the regulation of the profession. It has been moving rapidly toward a regime of greater transparency and last week the profession welcomed the decision to set up an interim board.
Last week, in the response to the junket report, Mr Kilcoyne, in a letter to Mr Neary, said intermediaries should disclose the life office of the sponsor, its location, the duration and dates of any inducement, and the apportioned costs. Estimates of costs would be available from life office accounts departments, the association said.
Mr Paul Carty of the Irish Brokers Association has argued that incentive trips have been a feature of the insurance industry for some time and asked "which is worse or more dangerous: an insurance broker going on a holiday, or a doctor being entertained by a drugs company"? And he noted that these benefits in kind were required to be disclosed under the new disclosure requirements.
However, the customer will not be told the form of the commission, so they will not know if it is a junket, or support for advertising etc. Why not? Surely disclosure and transparency go hand in hand.
And what about payments for reaching targets? If "A" life company makes an attractive offer provided premium targets are reached, will this tempt some brokers to sell A's policies rather than B's which might be more appropriate?
Most brokers, of course, would opt for the best policy for their clients as this is the only way to grow a sustainable business. Also, insurance companies have to be able to offer incentives but these should not be "substantial", otherwise there would be no limit and that could lead to a lure too attractive to turn down. And ultimately it is the policyholders that end up paying for such excesses.
