Almost 200 delegates made their way to Peebles, south of Edinburgh, last week, for the re-establishment of the Biba Scottish regional conference, after a gap of five years.
For the delegates, it was a chance to hear from a cross-section of top speakers, covering the whole of the industry.
For insurers, it was a chance to meet and understand the needs of almost 100 of Scotland's brokers, large and small. Hamish Maitland reports
Sarah Wilson from the FSA, gave the keynote address at the newly convened Biba conference.
Anyone hoping for a clue as to what shape regulation might take would be disappointed. However, Wilson, who oversees the regulation of high street outlets, gave a strong signal that the FSA was listening to outsiders.
Responding to the issue of travel agents and warranty insurance, she made it clear that the decision as to whether they should be included or not within the new regime was the government's. Then it would be the FSA's responsibility to implement the regulation.
She displayed an awareness of potential cost of regulation, particularly for smaller firms, and indicated an understanding for regulation to be proportionate to risk.
Two issues that would be key to FSA compliance would be solvency, and the requirement for a firm to be "fit and proper".
She highlighted the difficulty for firms that are currently regulated for financial services products via a network, who would not then be able to apply to the FSA directly for general insurance authorisation. She suggested that such forms would need to look at the structure of their businesses.
Dependent upon the date of enactment of the European Insurance Mediation Directive (IMD) she anticipated that FSA regulation would commence in October 2004.
Responding to a question from the floor, she said brokers would be able to apply in the second half of 2003, but also pointed out brokers would need to compliance procedures in place before applying.
Equally, she spelt out that those unable to meet the criteria by October 2004 would quite simply, be unable to continue to trade.
Regarding those who chose to remain voluntarily regulated, she stated that it "makes it possible to give a firm some sort of credit based on past regulatory record".
Hamish Ritchie
Incoming Biba chairman Hamish Ritchie, against popular opinion, suggested that his employer Marsh was a collection of smaller ones, making one rather big one.
Reflecting on the gloom and doom in the current market place, he recalled the claims arising from 1965's Hurricane Betsy in the US, and the ensuing capacity restrictions, the stock market crash in the late 1980s, and the previous liability crisis of 1984/1985.
His message was that the market had survived these previous upheavals, and that the current market represented an opportunity for brokers.
He said that the key was to manage expectation. The national press were giving more coverage to insurance-related issues, and it was the broker's role to interpret that for clients, get them to understand the drivers behind increases, and act professionally in order to obtain the best possible deal.
The client could not afford to carry the can himself if he bought the wrong cover. He said it was in the interests of all, that each member of the distribution chain worked together, making a win-win situation for all.
Ritchie listed the catalysts for the present situation as being historically low rates, low reserves, a weak stock market, and the `Independent Insurance effect', which he described as a company writing as much income as possible to stay solvent ... but didn't.
Theo Duchen
Acturis joint chief executive Theo Duchen opened the afternoon session, and took a look at where the industry was with regard to e-trading.
Echoing previous speakers, he highlighted unacceptably high error ratios, and the benefits single keying could have. He drew comparison with the motor manufacturing sector where the error ratio is 0.5% as opposed to about 46% in commercial insurance.
He also suggested that more standardisation in the handling of information was needed, leaving time for the broker to focus on his front office activities and unique selling points (USPs). He said productivity would need to move from the current estimate of between £250,000 and £300,000 premium income per head of staff, towards £500,000. This could not be done without embracing latest technology.
Sandy Scott
In the final formal session, CII director general Sandy Scott talked about delivering affordable training and competence solutions that were relevant to staff, and their work.
He said that in the current market capital, costs, service and knowledge should be added to the list mentioned earlier, in order to maintain competitive advantage.
He cited qualifications as a foundation for competence, but stressed that maintaining competence would be key to operating in the new regulatory environment.
A good training and competence scheme would be a key factor in demonstrating best practice. The regulator would look for evidence of continuing competence, and this was an area where the CII was looking to deliver cost effectively.
He told the audience that the CII was working with Biba, Cila, and others with a view to developing learning programmes that were relevant in the current market place.
Scott stressed that the cost of compliance should not be confused with the cost of competence, and highlighted the development of the educational online learning capability of the CII.
Mike Williams
The final session closed with an open forum, opened by Biba chairman Mike Williams, who following his recent appearances on television and radio, was referred to as "Biba's media star".
Williams spoke on current issues and then invited comment. Aberdeen broker Hugh Robertson stated his absolute opposition to commission disclosure, pointing out that direct insurers should have to disclose acquisition costs to maintain a level playing field.
On a show of hands, there was 100% agreement with Robertson's stance. Sadly, Sarah Wilson had already left for London and did not witness the vote.
Somewhat surprisingly, Williams indicated that, on a case by case basis, such deals were still being done.
In a comment which sent a shudder around the insurer delegates, he suggested that brokers should speak to their insurer partners.
Grant Ellis: insurers target winners
The Broker Network managing director Grant Ellis alluded to the handful of risk averse insurers and poor levels of skill and service.
He reflected on the 25,000 reduction in the industry since 1995, and a 60% reduction in broker numbers during that same period.
Significantly, he said, the numbers employed in the broking sector had remained static.
He pointed out that only 225 brokers control premium income in excess of £6m.
Looking at the suggestion that many ageing brokers will throw in the towel in 2004 rather than submit to FSA regulation, he said that if current numbers were to be believed, about £600m of capital would need to be found to fund those purchases.
The harsh reality was that businesses not fit for regulation would drive prices down in 2004, but those around once the dust settled over regulation would be the ones to prosper.
His conclusion was that the future for smaller businesses was uncertain as insurers would look to target their activities more and more to the perceived winners in the broking community.
He indicated that the deals his network was securing from insurers, meant that brokers could consider the route at no extra cost to their business.
Peter Hubbard: brokers in the driving seat
AXA UK chief executive Peter Hubbard used an impressive array of statistics to give an overview of current broker distribution in the UK, and how that may change, in what he described as the "2004 watershed".
He highlighted 2004 factors such as the ageing broker population - 50% over 60, 25% between 55 and 60 - the end of the hard market, FSA regulation and more insurer consolidation as being the key drivers.
He saw the major insurer challenges as being the continuing high cost of expenses, error ratios, underperforming IT systems and insufficient trust between brokers and insurers.
That said, he also acknowledged that the broker channel remained in the driving seat of UK commercial insurance, saying that it was critical that insurers work together to maintain that status quo, mindful of the potential threat from the bancassurance sector.
He recognised that the industry had suffered a high turnover of staff, and the urgent need to rebuild technical skills and knowledge within insurers, and underpinning all this, the need to make a return for stakeholders.
Hubbard said the development of an insurance portal to act as the interface between all insurers and intermediaries was vital. Later in the day, AXA's Colin Calder, acting as Polaris system spokesman, indicated that such a portal could be in place by February next year.
Hubbard cited the motor industry as one that had recognised the economies of scale on aspects that were non-competitive, such as the mass production of parts. Having cut costs in that area, individual motor manufacturers were then able to concentrate their efforts (advertising expenditure) on their own USPs.
He closed in upbeat style, noting that the demand from consumers for insurance protection was at an all time high, and for those who got it right, an assured future awaited.
