Kelly Phillips

Senior Business Development Quality Manager

Omni Protect

A key focus of the FCA’ s market study has been commission, and one of the questions I am asked most often by members is whether the FCA is likely to remove indemnity commission – where commission is paid as a lump sum upfront. My view has always been that this is unlikely, as many stable, profitable firms rely on indemnity structures to cover their overheads.

That said, it has been a topic of speculation across the industry for quite some time, with many expecting the FCA to take a far stronger stance against it. Having now seen the interim report, it appears the regulator will not be making as many changes as some had feared.

While commission will remain firmly on the FCA’ s radar, particularly when it relates to behaviours that may encourage firms to rebroke policies unnecessarily, the report makes it clear that this type of activity is not widespread. However, even isolated occurrences are enough for the FCA to want to eradicate the risk. Their intention is not to overhaul commission structures

across the board but to address very specific areas where they believe consumer outcomes could be undermined.

The question of 2 and 4 year commission terms

One area that many of us expected to attract attention was the use of 2 and 4 year commission terms. When speaking to peers across the industry, the consensus was that the FCA was quite likely to probe the suitability of 2 year terms more closely. The logic is simple: shorter commission terms can increase the temptation for frequent replacement of policies, which is not always driven by customer need.

However, based on the interim findings, it appears the FCA will not be pursuing changes in this area after all. This naturally raises the question of whether the responsibility will fall to providers instead. Providers

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