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Global Scale by Coletta Kemper Ruling Principles

Britain’s voluntary ruling principles could finally let some sun shine in.

By  Coletta Kemper

Whenever the subject of transparency in our industry comes up, I find myself humming the song “I Can See Clearly Now,” which was written and made popular by American pop singer Johnny Nash in 1972. If you are old enough, you probably remember the lyrics:

I can see clearly now, the rain is gone. I can see all obstacles in my way.
Gone are the dark clouds that had me blind. It’s gonna be a bright (bright), bright (bright),
sun-shiny day.

At least that’s the hope of regulators in the U.K., who have just given their blessing to a set of industry-developed guidelines aimed at making the insurance process more transparent for the commercial client. The Financial Services Authority believes commercial clients have been blinded by a lack of information. In a December 2008 report, it said clients were unclear about how their insurance intermediary was compensated, what services were provided and what the intermediaries’ relationships were with carriers, including conflicts that might result from those relationships.

I don’t necessarily believe commercial clients have been in the dark about the products and services they have been buying— at least one client trade association was giving seminars on contingency commissions at least 10 years ago—but I do agree that transparency is good for the industry. It restores trust and makes the industry more professional.

The guidelines were developed to help intermediaries comply with FSA rules set out in its handbook, The Insurance Conduct of Business Sourcebook. The rules address conflicts of interest, transparency and compensation in the U.K.’s commercial marketplace.

The FSA principles are:

· Integrity: A firm must conduct its business with integrity.

· Management and control: A firm must take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems.

· Customers’ interests: A firm must pay due regard to the interests of its customers and treat them fairly.

· Communications with clients: A firm must pay due regard to the information needs of its clients and communicate information to them in a way that is clear, fair and not misleading.

· Conflicts of interest: A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.

It’s tough to argue against these. They’re like “Mom and crumpets and tea” (the British equivalent of Mom and apple pie). But you could run a truck through the gaps in interpretation—a lawyer’s dream. It is up to the industry to interpret the rules.

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