A Brokers Guide To Navigating Premium Finance Commission Disclosures
The motor finance commission scandal in the UK brought to light the critical importance of transparency and informed consent in financial transactions. This issue is particularly relevant in the premium finance market, where commission disclosures to customers have become a focal point of compliance and customer trust. In this blog post, we examine approaches to commission disclosure and the implications of their practices for the industry.
No Commission Disclosure
Some premium finance providers have taken the view that the outcome of the Court of Appeal does not apply to premium finance and as such are not requiring brokers to disclose commission details to customers at any stage. This approach, in our view, falls short of the standards set by the Court of Appeal in the Hopcraft case, which emphasised the necessity of disclosure of, and informed consent for, commissions paid to financial intermediaries.
The absence of any requirement for disclosure risks regulatory scrutiny for all parties involved in the customer journey. In today’s market, where the FCA are pushing for higher levels of transparency between consumers and businesses this approach may be perceived as opaque and outdated, with potential ramifications in the future.
Post-Purchase Disclosure via Email
An alternative and more compliant process in our view is informing customers about the commission paid to brokers after they have purchased insurance. This disclosure is sent via email, seeking the customer’s informed consent. If the customer does not approve the commission, the loan application is rejected.
While this approach ensures that customers are made aware of broker commissions, it raises questions about the timing and effectiveness of the disclosure. Informing customers post-purchase means they are not equipped with this knowledge during their decision-making process.
From a broker's perspective, this process presents significant challenges. Customers who have purchased an insurance product may overlook or miss the email, leading to decreased conversion rates and an increase in manual remediation efforts to refund or save those customers who have missed the deadline of agreeing to the disclosure.
Embedding Commission Disclosure in the Customer Journey
By integrating informed consent directly into the customer’s online journey customers are provided with clear, upfront information about the commission paid to brokers before they finalise their insurance and financing decisions.
This proactive approach aligns with the principles of transparency and informed consent, empowering customers with the knowledge they need to make fully informed choices. By embedding this process into the online journey, it eliminates the need for any additional manual or technical effort from brokers to deliver a regulatory sound and transparent customer experience.
Why Transparency Matters
The Court of Appeal's ruling on motor finance emphasised the importance of disclosure of, and informed consent for, commissions paid to financial intermediaries, setting a precedent likely to influence the premium finance sector. This judgment underscores the necessity for clear and timely commission disclosures to avoid regulatory and reputational risks, as well as to build trust with customers.
The Path Forward
The contrasting approaches highlight a spectrum of practices in commission disclosure. Render’s view is that to build a sustainable and trustworthy premium finance ecosystem, stakeholders must:
Adopt Proactive Disclosure: Embed commission disclosures early in the customer journey.
Enhance Customer Understanding: Use plain language and accessible formats to explain commission structures.
Ensure Informed Consent: Require clear, affirmative customer consent before proceeding with any financial agreement.
By prioritising these principles, the industry can not only meet regulatory expectations but also foster long-term customer loyalty and trust.
If you have any questions about how to implement commission disclosures into your customer journey’s feel free to reach out to Chris Rees at Render.