FSA rules on grossing up insurance premiums
the challenge:
We were asked to advise a UK based broker on the grossing up of
insurance premiums and whether they had a duty to report this to
the Financial Services Authority (FSA) if it occurred. They
had reviewed the FSA rules and could not see anything specifically
governing such reporting or outlawing the practice of grossing up,
although they believed that it could not be done.
our
approach:
We reviewed the law of agency, which forbids the making of an
undisclosed profit, and advised on whether this applied. We also
spoke to the FSA to obtain clarity on the position. The FSA
confirmed that there was no provision to outlaw the practice but
that grossing up breached the objective of clarity and transparency
to clients, as it would not be possible to determine the split
between the premium and what had been charged as commission.
The details of these discussions were communicated to the
client.
the result:
A clear position was established and advised to the broker in
connection with grossing up of insurance premiums; broker able to
provide clarity to their clients on the requirement to split
premiums and commission.