The insurance industry should back the General Insurance Standards Council (GISC) or risk increased regulation by the Financial Services Authority (FSA), industry bodies have warned.
Both the GISC and the British Insurance Brokers' Association (Biba) have warned that the Treasury will remove the industry's chance to self-regulate and bring in statutory regulation under the FSA.
The warning was prompted by the Institute of Insurance Brokers' (IIB) launch of its Regulatory Council (IIBRC) on Monday (October 22), a body to rival the GISC.
The GISC was formed in response to the government's request for "self-regulation by a body having support across the industry, independent of insurers and intermediaries".
However, on Tuesday a Treasury spokeswoman said it was watching the industry carefully. "In the past, we decided, after consultation, against the statutory regulation of general insurance, but that was some time ago," she said.
"We're monitoring developments in the industry closely."
IIB director general Andrew Paddick said the IIBRC would adopt the core standards of the now-defunct Insurance Brokers Registration Council (IBRC), until it elected its board next March.
He said the election did not necessarily mean the final IIBRC rules would vary greatly from the interim rules borrowed from the IBRC.
Paddick launched the IIBRC after successfully appealing to the Competition Commission Appeals Tribunal (CCAT) against the Office of Fair Trading's (OFT) decision to pass the GISC's rulebook.
The IIBRC will cover only "professional insurance broking practices".
Critics said the IIB's appeal left general insurance regulation as fragmented as it had been before the GISC. Now it is feared the industry will be seen as unable to work cohesively.
GISC spokeswoman Catherine Nicoll said: "A consequence of the GISC not being seen to command the support of the industry is that the government may exercise its residual powers under the Financial Services and Markets Act to transfer responsibility for the regulation of general insurance to the FSA."
Nicoll said should that happen, the industry would be unlikely to find "prescriptive and intrusive" statutory regulation to its liking.
"There are one or two people who would prefer statutory regulation in the long term, but the very great majority, insurer or intermediary, says the industry needs a more pragmatic approach," she said.
Biba spokeswoman Jennifer Weller agreed the industry would face an extremely strict regime if the FSA took over regulation.
"It's always been in the wings and it could come to the point were that happens," she said.
"It would be even harder for brokers to comply and conduct business if the FSA took over because its regulations are very stringent."
Weller also said the public would be confused by the emergence of another insurance regulator.
"The main point is that this is exclusive rather than inclusive," she said.
The IIB's three-page Interim Professional Code of Conduct comprises ten principles on professionalism, objective advice, integrity, business practice and organisation, financial requirements, advertising, complaints and professional indemnity insurance.
The IIB will also offer an Institute Registered Insurance Broker educational syllabus, comprising two diploma-level examinations.
Paddick said 5,000 brokers were already registered with the institute.
The GISC has more than 6,000 registered firms, including 130 insurers, whose business accounts for 90% of UK general insurance.
The GISC is currently reviewing its application for exemption from the Competition Act.