Conflict of interest of insurance brokers : recent developments in US and China and prospects for regulation in the European Union

Abstract

The Authors consider how three dissimilar jurisdictions, the United States, China and the European Union, review and regulate conflicts of interest of insurance brokers. The US section briefly summarizes state-based insurance regulation, the public and private litigation surrounding contingent fee commissions, and proposals for regulatory change. The China section focuses on recent legislation mandating specific disclosures by brokers on compensation and the author suggests that disclosure along is not a fully adequate remedy for the potential conflicts of interest. The EU section reviews Article 12 of Directive 2002/02/EC on insurance and general requirements of suitability discusses whether the MiFID Directive for investment services offers useful solutions, and concludes with a similar concern that disclosure alone may not be an effective remedy to counter-balance the powerful economic incentives aligning insurance brokers with insurance undertakings. The three authors caution that disclosure alone may be ineffective in policing this area, particularly with personal lines or retail customers. Further, insurer-based compensation schemes can create conflict of interest problems with independent insurance agents as well, an issue that none of the jurisdictions appear to address.