The title of this is a bit misleading as the FCA/Financial Conduct Authority is not verses all insurance companies, but there are two (2) insurance companies the FCA has referred to their enforcement division. This is due to the insurers breaching the rules of offering commissions to advisors for selling their products.
First it was mis-selling PPI, then it was interest rate switching, then it was payday lenders and their lending and collection methods, when will it end??
The new rules about selling insurance products it there to protect the consumer. The new rules want to ensure that advisers do not recommend products with bias, meaning recommending and selling insurance products that they may receive commission for selling. It is almost guiding or herding the consumer to a specific product.
This is not uncommon in all “sales” jobs, or positions that an advisor or sales person may receive a bonus or commission for selling one specific product or service over another.
When I sold insurance in another lifetime, it was all commission based, and you were rewarded or received a higher commission for certain insurance policies; usually the ones that cost the most.
There can be incentives or bonuses for sales people who sell a product from a shop that the store wants to get rid of or move quickly. A new line of gadgets or clothing is coming out so we need to sell more of the old ones to get rid of them.
So in theory the practice is widespread amongst many types of businesses.
However it is seen a bad practice in the banking and insurance industry and is not only frowned upon, but rules and regulations forbid it being done.
One negative of using commissions to pay advisers is that in some instances a financial advisor must charge an upfront fee for a consultation or any services they offer. This can deter people from using the service. or the adviser.
So it is a fine line to walk, commissions or no commissions.
We will have to await the FCA’s investigations and findings to know more on the two insurance firms being looked into.