INSURANCE salesmen will be able to conceal controversial commission payments from their customers when the Financial Services Authority (FSA) takes over the regulation of the industry in January.

Consumer groups claim the move leaves a “gaping black hole” in the FSA’s regulations. Advisers who sell investment products have to send their clients documents that disclose how much commission they have earned.

Mortgage brokers will have to abide by the same rules when the FSA starts to regulate home loans next week.

But consumers who buy insurance will not have to be told how much commission the insurer pays to the broker.

Mike Naylor of the Consumers’ Association said: “Salesmen are often biased towards the policies that pay the most commission, which may also have the highest premiums.

“We lobbied the FSA to force salesmen to disclose their commission upfront, especially for complex policies such as life insurance, critical-illness cover and mortgage payment protection. Commission can influence the product that is sold — or even whether it is sold at all — so consumers should be told about the payments.”

Brokers could earn between £140 and £200 on a typical life-insurance policy, for example. The commission can be double your first year’s premiums.

A male non-smoker aged 29 would pay between £7.70 and £11.34 a month for £100,000 of life cover. A broker who sold the cheapest policy, from Liverpool Victoria, would earn £144.71 commission, compared with £197.89 if he or she sold the dearest plan from Bupa.

Robert Guy of Timothy James & Partners, a financial adviser, said: “Protection policies are among the most lucrative products around, but advisers will be under no obligation to reveal how much they earn from selling them. There may be occasions when the policies are sold purely because of the commission on offer.”

The kickbacks have been branded “corrupt” and “anti- competitive” by Eliot Spitzer, New York State’s attorney general. Last week he filed a lawsuit against Marsh & McLennan — the world’s biggest insurance broker — and four other firms, for allegedly steering unsuspecting clients to insurers that paid the most commission.

Marsh & McLennan earned $800m (£440m) from these payments last year alone — more than half its profits.

The Financial Ombudsman Service, which investigates complaints by British consumers, says it is inundated with cases where insurance salesmen have flogged unsuitable policies.

For example, the ombudsman receives 1,000 cases a year about payment-protection insurance, which is designed to cover your loan repayments for up to a year if you are unable to work.

However, policies are regularly mis-sold to borrowers who are not eligible to claim because they are self-employed or on short-term contracts.

Naylor said: “Salesmen often sell highly expensive products that consumers either do not need or under which they would not be able to lodge a claim.”

The FSA thinks that the disclosure of commission is unnecessary for general insurance contracts. A spokesman said: “We proposed that commission disclosure should not be introduced for private customers for two reasons. First, unlike investments, the price of insurance is transparent. But with investments, commission disclosure is necessary for the customer to know how much of his premium is being invested.

“Second, consumers shop around for some types of insurance and the transparency of premiums means it is easier for customers to compare policies and spot poor-value products.”

However, insurance brokers will be required to disclose their commission to business customers from January.

Consumers may have some protection from a law that is outside the FSA’s remit. If your insurance broker is deemed to be acting as your “agent” he or she does not have to disclose their commission upfront, but must reveal the payments if you ask. Most consumers do not realise they have this right.

If you buy cover from a bank or building society, the salesman will not have to tell you about any commission even if you ask.