View from City Road: Right step but SIB rules are not watertight

Life assurance and pensions salesmen will not exactly be standing on street corners shouting 'we're cheaper'. But for the first time there will be real price competition after the new SIB disclosure rules are implemented.

At this stage, it is impossible to say how far commissions will fall once every buyer is confronted automatically with the brutal numbers demonstrating how much premium goes straight to the intermediary's pocket. Indeed, the plans for a clearer statement of the life assurance company's own expenses over the period of the policy will loom even larger than the commission in many buyers' minds.

Inside the industry, the biggest price pressure will be on tied agents who work directly for life companies and banks. A recent survey by Lautro, the life assurance regulator, found tied agents' commissions were significantly higher than for independent intermediaries. With greater disclosure, this will certainly sway customers.

The Life Insurance Association, in another survey, discovered that tied agents and direct sales forces are far more worried than independents about clients shopping around for the cheapest commission.

If there is a problem with the SIB proposals it is the scope for life insurance companies and banks to fiddle the calculations of their own sales costs to flatter the comparisons with commissions.

The SIB does not intend to give a detailed blueprint for calculating remuneration. But it will require a life insurer to certify the amounts it is paying, with verification from an actuary or auditor. This will be backed up by routine monitoring of commission disclosures.

If the SIB suspects that a company is understating its payments to salesmen to undercut independent intermediaries, the regulator will have the power to order an audit at the firm's expense.

Officials believe discrepancies will soon become obvious from the commission tables they intend to publish, and that this will quickly prompt investigations. Even so, it wil be hard to police effectively without great vigilance.

It will be particularly important to ensure that companies with their own sales forces do not arrive at some informal understanding of how their costs are presented, which would make it hard to spot massaging. The Office of Fair Trading will need to take a deep interest in the commission tables.