Insurance Broking Relationships

In recent years some insurance broking firms have formed very close links with particular insurance companies, and in some cases the same people who head an insurance broking firm have also participated in the management of a life insurance company.

The reason for this is that such insurance brokers believe that their contact with the public has given them special abilities to design policies that will sell well. However, there are dangers for the public in this, since some firms of insurance brokers which employ their own salesmen may push the products of a particular company for reasons of financial self-interest not only on the grounds of commission earnings but since the profitability of the life insurance company benefits its shareholders.

For this reason one of the recent insurance regulations requires that where an insurance company and broker have a direct link, either through shareholdings or through common directors, it must be disclosed in all sales literature.

This also applies where an insurance broking company is given a "sole agency" for a particular policy. Such shareholding and directorship links are common among some of the largest financial groups and arise when a company has interests in several spheres, and so it is not in every case that such a disclosure should be read as a warning.

But in many cases, especially with smaller companies, it should serve to alert you to the possibility that the policy is being sold by the person selling it for reasons which go beyond the normal "arm's length" business reasons. And it is therefore always worth questioning a little more actively whether what is being advocated is what you need, and whether the company offering it is suitable.


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Who Owns the Company?

A still more pertinent question is: who owns the company?

If it is owned by another large insurance company, a major clearing bank or one of the large merchant banks, then clearly the resources available to it are far greater than if it is owned by family interests.

If it is owned by some intermediate organisation, say a minor financial company or group that is not part of the financial establishment, then this may also indicate a slimmer availability of resources to back it up.

In general, therefore, it is sensible to stick to companies that are sound in their... see: Who Owns the Company?


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