Disclosing the commission earned

Someone asked why it is necessary for an insurance agent to disclose the commission earned on selling an insurance policy, while sellers of other products are not required to disclose their commission.

The answer is, the insurance agent is supposed to give advice that is in the best interest of the client. The payment of commission create a conflict of interest.
The commission is paid indirectly by the client, from the premiums. A high commission means a high cost to the client.

The regulators in the UK, where this concept of disclosure was developed, thought that the disclosure was the best way to manage the conflict of interest. If the client is aware about the cost, the client would be able to evaluate the advice of the agent.

This belief has turned out to be naive. The consumers were not savvy. The advisers were able to hide essential facts from the clients or to give misleading information.

I understand, from comments posted in this blog, that the UK authorities have now decided that this "disclosure" does not work and intends to ban the payment of commission entirely. I have not been following this specific development, so I am not sure about the details.

I agree with the thinking that it is better for insurance advisers to be paid a fee for their advice. Some practising advisers also hold the same view, as they prefer to be transparent in their dealings with their clients.

Tan Kin Lian

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