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News Article : How can a Broker be the underwriter?
Category: Advisers & Brokers : Compliance
Author:Brent Wilson
Email:[email protected]
Posted:31 May 2006

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There is a definite conflict of interest that is not in the best interest of the consumer

On Monday we ran an article from Henry Tours on the vanishing aviation insurance industry in which he raised several very alarming points, including the issue of binding.

To read this article please click here.

ITInews received a letter from an UMA in response to the article and we have published this below. It is clear that there is a definite conflict of interest that is not in the best interest of the consumer as well as a fundamental failure to disclose as well as being an uncompetitive business practice.

Imagine a broker earning on average 17.5% commission, another 1.5% administration fee and then an additional 5 or 6 points as the underwriter. It is no wonder that some UMAs are stealthily becoming broker/administrators and vice versa.

Letter to the Editor

Dear Sir

Your article titled “South African aviation insurance industry shrinks – how can a Broker be the underwriter” is excellent in that it is the first time that I, (a registered UMA), have seen the “hard” question being asked.

We are being increasingly marginalized as legitimate UMAs distributing products and capacity for bona fide local insurers by “broker facilities” and ring fenced “administrators” whose income focus seems to override both the client’s needs, as a priority, as well as the regulations contained in the FAIS / Insurance Acts.

It is about time that the regulators and governing bodies investigated this practice which is, ultimately, to the detriment of the consumer - the very person their legislation is designed to protect.

When the client’s needs come up against the personal financial incentive it is no guess as to which will win.

This reinforces unsustainable rate levels in chasing premium volumes for commission and administration service income, squeezes insurer margins for additional outsourced costs on administration, incentivises the management of claims payments, sometimes to the point of rejection, to maximize profit sharing etc….amongst a plethora of other evils.

We watch with concern as this latest trend further fragments the distribution channels, increases costs for the consumer, erodes service delivery value in the market and makes a mockery of long established business principles.

It would take a completely autonomous ownership structure to adequately manage all the conflicts of interest such models create.

We invite comment from UMAs and brokers on this issue to be addressed to the [email protected]

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