The credit crunch is making the headlines, but brokers will have more to worry about when they return to their desks with a host of deadlines and regulations vying for their attention. Mark Skinsley explains.
The salad days of summer are almost over and brokers who have been lucky enough to escape the British weather by sunning themselves in Spain, the Caribbean or elsewhere will soon be back at their desks, ready for the new term. But there will be more to do than simply learning ABCs or times tables. Brokers will be facing a number of deadlines and regulatory pressures in the coming weeks and months.
In an effort to ease the transition back to the daily grind, Insurance Times has put together a list of issues that brokers should have on their radar heading into the autumn.
Treating Customers Fairly
Hands down, the No. 1 regulatory challenge at the moment is Treating Customers Fairly (TCF). The FSA is demanding that firms are able to demonstrate to both themselves and the regulator that they are consistently practising TCF. To do this, firms must have the right management information in place to test whether they are meeting the criteria.
Only 13% of firms met the March deadline for starting to implement TCF, but the FSA has predicted that 80% are capable of meeting the final deadline in December. Those failing to meet the criteria will face the prospect of greater regulatory intervention and hefty fines.
TCF is a principles-based model that was established to protect consumers. But there is still widespread confusion over what exactly TCF is. Whatever your strategy, it is a safe bet that having some sort of tangible, documented evidence of TCF is the way to go – for example, customer satisfaction surveys.
The prospect of mandatory commission disclosure has struck fear in some brokers’ hearts. They believe it could lead to loss of customers – including those who might have previously considered commission a given, but would become scared off by the actual figures.
The FSA is calling for greater transparency and comparability of the remuneration brokers receive, and is considering mandatory disclosure. But brokers can take solace in the fact that Biba and the IIB have been working together to lobby the FSA for a market-led solution. Currently, brokers are not forced to reveal commission unless a customer requests it. Negotiations are ongoing and a decision from the FSA is expected next month.
Brokers who sell solicitors’ professional indemnity (PI) insurance are gearing up for the October renewal deadline.
RSA’s plans to exclude one- and two-partner firms from acquiring PI cover – because they are seen to pose a greater risk – will no doubt be of concern to smaller practices.
With solicitors’ claims rising on a month-by-month basis, insurers are becoming increasingly careful about whom they offer professional indemnity to.
The renewal season runs from July to September but the majority of solicitors tend to renew in the last fortnight before the deadline. Brokers should consider urging their clients – especially sole practitioners – to get their PI sorted immediately to avoid any sudden mortgage claims that might render them uninsurable. A spike in mortgage claims is expected as a consequence of the current property market downturn, which is one factor expected to push rates up.
New term, new courses. The CII is just one of the bodies putting together an autumn training programme for brokers. There are a number of courses running at the CII Face-to-Face training centre in London. Starting in September, there are introductions to a variety of disciplines including commercial insurance, underwriting, reinsurance and the London market.
Brokers can also get an update of the Australian insurance law market, as well as attend a session on commercial insurance contract wording, and a three-day intermediate non-marine reinsurance course. For more information contact the CII, which also has regional workshops starting next month.
Legislation in May this year granted the Information Commissioner’s Office increased powers to impose substantial fines on organisations deliberately or recklessly committing serious breaches of the Data Protection Act. Brokers will have to be vigilant and invest in data security systems to avoid any potential fines as a result of breaches.
Data security has gained notoriety due to an increasing number of security breaches across all sectors.
In the insurance industry, insurers and brokers can benefit from the trend by selling cyber insurance products. According to a recent report from Advisen, the development of privacy and data security insurance products had been hampered by underwriting challenges and a perceived lack of demand. But the report said that attitudes are changing, due to highly publicised losses as a result of poor data security.
Advisen listed AIG, Chubb, Travelers, Ace, CNA, Darwin, Beazley, Hiscox, Zurich, Evanston and Great American as providers of cyberliability products.
Insurers are becoming increasingly aware of risk because they too have been targeted. For example, Aviva-owned Norwich Union was forced to overhaul its security systems and introduce tougher screening after 74 Norwich Union policies were fraudulently surrendered in 2006 in a case that saw the insurer’s own directors targeted.
Norwich Union chief executive Igal Mayer has taken a strong stance against consolidators’ commissions, and has named 30% as the ideal distribution rate. Depending on how the negotiations play out, it could spell the end of sky-high commissions being paid by insurers.
Paul Donaldson, managing director of RSA’s broker division, believes the economic slowdown and the regulatory focus on transparency will lead to a degree of market correction on brokers’ commissions. But he is not convinced the effects will be widespread.
“This will affect a relatively small number of brokers in terms of general commission rates and also individual product lines,” he says. “In any deal the overall economics have to stack up. There needs to be value for all parties including the customer, and commission is just one component of the equation.”
Connected travel insurance
Despite being in the final throes of the summer holiday season, the travel market is preparing itself for connected travel insurance (CTI) coming under FSA regulation at the turn of the year.
The FSA already monitors travel insurance sold through insurers and brokers, but the new regulation will encompass holiday providers selling travel insurance alongside holidays.
Travel companies will have a number of avenues they can pursue to ensure they don’t fall foul of the regulatory measures. They can be directly authorised by the FSA, become representatives of other authorised firms or withdraw from the CTI market completely. There is also an option to become an unregulated introducer in limited cases.
Giving customers contact details of a broker or insurer will remain unregulated, but passing on customers’ details to third-party providers is classed as introducing and providers would need to be approved by the FSA as an introducer associated representative, which means a travel firm would not be able to sell insurance, but could direct customers to an authorised seller.
The outcome of the government’s proposed Equality Bill could send shockwaves throughout the insurance industry. With legislation expected in early 2009, insurers and providers won’t be allowed to discriminate on the grounds of age or gender, unless there is actuarial evidence to support such action.
Biba has been looking at three areas that could be affected by the bill: private medical, motor and travel insurance. Peter Staddon, head of technical services at Biba, highlights the difficulties that could arise as a result of the proposed legislation. For example, he says, if employers are forced to provide private medical insurance for elderly staff, they may reduce benefits for all staff in order to keep costs down.