While the regulator must complete careful audits of new firms, the time periods being reported have to improve
By Yiannis Kotoulas
Insurance Times is always glad to hear from new brokers cutting the ribbon and entering the market.
In a space where the majority of news stories about SME brokers concern them being acquired, it is encouraging to see that new entrants are replenishing the numbers of those snapped up by the big fish of the industry.
If the market is to remain as dynamic as it is, then this process is essential – suitable M&A targets are not drawn from a bottomless well, but rather from one that must be refilled.
Indeed, while Ardonagh Advisory’s chief commercial officer Phil Bayles believes chatter around the UK running dry on potential M&A targets is “nonsense”, this was because he trusts that UK general insurance broking is a very entrepreneurial market” in which “people are always coming up with new ideas or new ways to serve clients”.
Bayles is not wrong – the insurance sector is full of entrepreneurial people willing to take the risk of starting their own businesses.
However, from speaking to a number of recently launched SME brokers, it is obvious that there are regulatory challenges and hoops that must be jumped through before this can become a reality.
This is not to criticise the process of authorisation itself. The insurance sector is a highly regulated environment and the FCA must content itself that any new entrants will live up to these standards – that is its role, after all.
But, the amount of time that recently launched brokers had to wait to begin operating seems excessive. There is surely room for improvement here.
The latest FCA data on authorisations, released in March 2023, revealed that 91.7% of firms authorised in January and February 2023 were completed between six and 12 months after receiving an application.
This was down from 97.8% in the 2021/22 full year reporting period and was marked by the FCA as declining – however, the regulator said it planned to be meeting this statutory target by the end of March 2023.
Insurance Times has contacted the FCA for further comment on this issue.
Room for improvement
Martin Weaver-Parker, managing director at The Yorkshire Broker, which launched in February this year, explained that the authorisation process for his business took eight months.
He explained: ”The guideline is up to six months for authorisation, but it took us around eight months in total.
“The FCA came back with a couple of questions too, which meant that our submission was classed as incomplete, give gave [the regulator] another six months to complete it. It wasn’t the easiest.”
David Mitchell, cofounder and codirector at recently launched Redditch-based SME broker Prime Cover, explained to Insurance Times that it submitted its application for authorisation in April 2022 before receiving it on 6 January 2023.
This was preceded by a “lengthy” period of completing lead-in work – with the additional cost of advice and resources needed – that began in December 2021.
All in all, the authorisation process took just over a year – “certainly a little longer than we were advised it would be,” explained Mitchell.
This process must improve – the entrepreneurial spirit present within the broking industry must be able to flourish.
To be fair to the regulator, it is well aware of these problems and is working to improve them.
An FCA spokesperson told Insurance Times that it saw improving the authorisation process as a “vital issue” and added that it had brought in additional resource to facilitate this.
Speaking at Insurance Times’ BrokerFest 2023 event on 23 February 2023, the FCA’s director of general insurance Matt Brewis said: ”The authorisation process at the FCA is improving and has got quicker.
“That’s because more [applications] have been refused at the gateway – we’re focusing more on ensuring that problem firms do not enter the market and go on to cause harm.”
This seems like a good strategy – but as always, the devil will reside within the detail.