Likely rise in tariffs comes despite the Central Bank's aim of providinggreater consumer protection - report

Life assurance customers face significant price hikes under the revised regulatory system introduced by the Central Bank, a new report warns.

The likely rise in tariffs comes despite the Bank's objective of providing greater consumer protection, according to the research by the accounting firm Cooney Carey.

The Central Bank assumed responsibility for the regulation and supervision of brokers 13 months ago. It recognised three categories of brokers, with only a certain number of brokers authorised to advise on all products and others restricted to products sold by specified firms

Based on questionnaires filled in by more than 200 respondents and interviews with certain industry figures, the report said a "significant" part of brokers' income would now have to be earned from client fees rather than commission from insurance companies, under the new regime.

More than 80 per cent of brokers currently derive 80 per cent of their income from commissions, the report says. But the burden of meeting their compliance obligations under the new scheme means that "the likely short-term impact for most brokers will be less time for client-facing activities.

"It is therefore reasonable to assume that income levels for smaller brokers may suffer in the future due to less actual available 'selling' and client development time.

"This is a critical issue for insurance intermediaries who largely depend on sales commissions as their only source of income," says the report.

The lost income is most likely to be recouped from fees charged to customers, suggests the report.

"It is clear that the Central Bank compliance regulations have had a significant impact on the Irish life assurance industry," it predicts

"The purpose of the Central Bank regulation was to provide much-needed consumer protection within this sector of the financial services industry. Does it inevitably mean that the consumer will have to pay for the additional costs associated with regulation compliance?"

A person familiar with the research says the answer to this question is "yes". If brokers are to maintain their income, higher or new fees would be charged, it concludes.

Yet despite this observation, some 62 per cent of respondents believed the split between their fee and commission income would not change.

But with more income likely to be derived from fees rather than commissions, the report says this may signal a realisation that they must provide consumers with a service that justifies an advisory fee.

The report also says there are questions about how the transition process to the new Central Bank regulatory environment should be managed.

"Opinion is almost evenly divided between insurance intermediaries who feel that life companies should play a stronger role in helping to manage broker compliance and those who feel it is their responsibility alone."

Stating that there was a perception that certain life companies had supported brokers better than others, it says the industry now faces a major challenge. Life companies that "ignored" the new regime "may have suffered some reputation damage" in the broker community.

The report notes: "One surprise is the attitude of some brokers to life companies that do not focus on or utilise the broker channel as part of their market strategy. This may indicate an opportunity for those companies to develop an additional market channel; or it may just reflect the view from brokers that they have to provide the best advice and products to their clients in all cases."

In addition, while the new regulatory system enables approved brokers to offer a broader range of investment products, there was little expectation of change to existing agency arrangements or in the products offered to customers.