Hugh Price joined Hugh James Solicitors as its Insurance Partner in 2002. He is renowned in the insurance field as one of the UK's top insurance litigators.
He writes about the uncertainties facing the insurance world in the wake of FSA regulation. He says it is essential to have an effective compliance support structure in the brave new broking world.

Now that general insurance is regulated by the Financial Services Authority, I suspect the whole insurance industry will be waiting with baited breath to see how the new regime evolves going forward.

Undoubtedly, there will be large numbers of brokers out there who will have used their best endeavours to put in place procedures to make sure that their businesses are fully compliant.

But these brokers will not be 100% certain that they have actually done all that is required under a set of very lengthy and often complex FSA rules and guidance notes.

It is very difficult and often impossible to obtain clear guidance from the FSA on the interpretation of specific issues.

Also, the practicalities of following certain required procedures may appear to be particularly onerous and not cost effective – for example the practical requirements to obtain the client's informed consent for holding client money.

However, these rules are clearly there for good reason and in most cases there will be a practical and compliant solution. It is for this reason that we are convinced that from the 14th January, the need for reliable and cost effective compliance support will be an invaluable if not an essential business tool for general insurance brokers.

I have no doubt that the FSA rules for insurance intermediaries will evolve to reflect the need to tighten or relax controls as appropriate, to maintain their relevance in a changing market, to protect the consumer and to raise the standards of an already professional industry.

Professional bodies such as BIBA will , I believe, become increasingly important in their role as the industry's spokesman and watchdog, advising brokers, customers and statutory bodies about key insurance issues.

In terms of the side effects of regulation, I believe we can learn here from history.

The financial services industry experienced major changes following the Financial Services Act, 1986, which came in to force in 1988. The costs associated with regulation and compliance brought about a continuing series of mergers, sales and acquisitions of businesses.

We anticipate that a similar environment would develop post 14th January 2005.

It has been said that we "live in interesting times”; who in the insurance industry could disagree? I do however see regulation as a great opportunity for those brokers who are positive and prepared to face the challenges ahead. They will profit from the opportunities that are sure to arise. Those businesses that fail to invest and put in place compliant systems will inevitably fall by the wayside. One thing is for sure, there will be no less insurance business written.

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