Feedback from Insurance Times’ Broker CEO Forum shows a disconnect between the regulator and the broking sector, with many believing communications from the FCA around its pricing reform fall short

By Editor Katie Scott

Regulation is the pencil line that joins and supports the dot-to-dot ecosystems of the insurance sector, however the FCA’s effectiveness came under serious fire at Insurance Times’ Broker CEO Forum event last month (October 2021).

Katie Scott_bw_path

Katie Scott

Discussing the impending implementation of the FCA’s general insurance pricing reform, fully effective from 1 January 2022, attending brokers particularly flagged the regulator’s language and communications to the industry as a key problem area here – especially as many in the room believed the regulator’s “fair value” foundation is a very subjective concept that is difficult to define for different parts of the market.

This communications confusion is clearly highlighted within a ‘Dear CEO’ letter the FCA published in October, where it raised concerns around its updated product governance rules that came into effect from that month. The regulator noted that brokers were unsure whether to identify themselves as manufacturers or distributors.

However, leaders attending the Broker CEO Forum said the FCA has not been as clear as it needs to be around the new rules – although the rules themselves are not overly complicated, delegates said, their implementation is complex and has different ramifications for each business affected by the changes.

For example, preparing for and adhering to new reporting requirements has taken time due to the varying quality of brokers’ management information – in turn, this has hampered or prevented M&A activity and business as usual tasks, brokers said.

Attendees did agree, however, that bigger firms will most likely find it easier to grasp the incoming pricing rule changes as they will probably know how to speak to and interact with the regulator to ask questions – plus, they will also be on the list of businesses the FCA typically visits.

Smaller brokers are more likely to fall victim to a communications gulf as they won’t have this same relationship with the FCA, delegates suggested, meaning there may be some naivety and misunderstanding around actioning the rule changes. This could then create a reputation risk for these firms, brokers added.

Too much power?

Broker leaders also took the opportunity during the event’s regulation-based panel session to air their grievances around how the FCA regulates the broking sector – in particular, attendees thought the FCA regulated by hint and suggestion rather than firmly providing set, usable guidance.

Some delegates complained that the FCA had been “invisible” in recent years, making it very hard to engage with the regulator in a meaningful way. Brokers noted that building a long-term relationship with the FCA is also tricky due to its staff turnover – something brokers pointed out as a cause for concern.

Brokers also questioned the FCA’s priorities. Some leaders in the room argued that the regulator is not specifically targeting problem areas within the market, but is instead more focused on introducing industry-wide changes, simply guessing where issues may arise – for example, around premium finance.

They described this style as “broad brush”, adding that – in their opinion – the FCA has lost its patience with the fact that some elements of the industry are not working as well as it would like.

One example here is the regulator’s ambition to do more around diversity and inclusion. In July 2021, it launched a consultation proposing to improve transparency for investors on the diversity of listed company boards and their executive management teams.

However, brokers feel that the FCA should be tackling the projects already on its to-do list before seeking to solve other issues – they added that too many large regulatory revamps in one time period will be “set to fail”.

There is also the staggering list of surveys the FCA has been sending out to the industry – this includes gaining feedback on brokers’ financial resilience following the Covid-19 pandemic, the results of which the FCA published in January 2021. Brokers attending last month’s event felt the roster of surveys was “too much” and left them with not enough time to service their clients.

Some leaders felt that the regulator has too much power, but not enough accountability.

Despite the necessity and importance of regulation, the fact it is an administrative bugbear cannot be ignored. It is worrying that so many brokers at the Broker CEO Forum felt that the FCA’s current approach didn’t suit or meet the needs of the broking sector and – even worse – detracted from business operations and dealing with clients, which could ultimately impact profitability and solvency.

The FCA simply cannot remain “faceless” any longer if it wants to boost engagement with brokers and deliver on its fair value promises.