Eric Galbraith explains why protests are the flavour of the month
Spring is in the air and the temperature is rising, nowhere more so than in the City where the prospect of this week’s G20 protests have left us at BIBA feeling a little unsettled and misunderstood. We have found ourselves on the protestors’ hit list of financial institutions in London that warrant extra special attention from them. I suspect deep down we would have considered ourselves industry pariahs had we not been included on the list, but can’t help feeling that we have been unfairly targeted with the role that we and our members play in society helping individuals, and dare I say it businesses, weather life’s crises forgotten or conveniently ignored.
That sense of unfairness struck me again at a recent industry forum held by the Financial Services Compensation Scheme where it was confirmed that firms will pay a general levy of £156m in 2009/10. Some of the figures mentioned around the table were phenomenal, particularly for the banks and investment advisers. Nor was there much comfort for them that further contributions wouldn’t be needed given that the levy is based on assumptions for the coming year, which as we all know are difficult to make at the best of times, but made even harder by the present economic environment where we cannot hope to account for every possibility.
In amongst all those figures, was a £8.5m contribution from the sub-class B2 for general insurance intermediation, which represents a £3.5m increase from the predicted figure in the FSCS’s plan and budget from January 2009. The FSCS says that this increase is due to the higher level of claims expected to be paid in relation to payment protection insurance - products which general insurance intermediaries have hitherto been unable to sell in any great number because of the stranglehold that the lenders had on sales.
The £8.5m represents a significant increase on general insurance intermediaries’ contribution to the FSCS, which will potentially fall more heavily on medium-sized and larger firms. They will all have to find the extra money from somewhere.
As I left that meeting the only thing I could say to myself with any conviction was thank goodness I’m not a bank, but that was cold comfort indeed. OK, so the amount that general insurance intermediaries are being asked to contribute to the FSCS is small fry in comparison with other sectors of the financial services industry, and providing compensation to customers who have lost out is vital, but that is not the point. It’s the matter of cross subsidy. General insurance brokers haven’t caused his mess, but they are being asked to help pay for it. We want to see fairness and proportionality and we continue to discuss this with the FSCS.
That’s not the only area where we are seeing increases in the cost of regulation. The FSA’s business plan proposes an increase in its fees and levies, up overall by 36.5%, to help pay for creating its so-called ‘effective deterrence’ and ‘outcomes-based regulation’. That’s all well and good, but they’ve yet to make the case that this is needed in the general insurance intermediary sector. Brokers need proportionality. They need to see that regulatory risk, supervisory oversight and the amount they consequently pay in fees and levies are accurately aligned. They want value for money from the regulatory system.
Brokers must mobilise. That’s why we are urging all of our members, both big and small, London market and regional, to join our FSA fees campaign. Please take the time to write to the FSA and your MP (you’ll find all the information you need to get you started on BIBA’s website), telling them of your concerns about their fee and levy proposals. Make sure that you spell out exactly how their proposed increases will affect your business and how it could not come at a worse economic time.
We cannot overstate the importance of broker’s individual responses to the FSA on this matter. Just as those G20 protestors are coming together in a tumultuous, collective action to make their concerns known; brokers too can demand change for a fairer way of funding the FSA – one that is more acceptable and transparent to all.
Eric Galbraith is chief executive of the British Insurance Brokers' Association (Biba).