Broker uncertainty

'Broker uncertainty

The FSA has set an aggressive deadline for the industry to gets it policies right, But for many brokers the issue is not a high priority. Katy Dowell reports

ersuading brokers that contract certainty must be achieved is like asking England to win the football - one knows it can be achieved and the idea is good, but the reality is different.

In December 2006 the FSA will consider whether brokers and insurers have addressed the issue. FSA chairman John Tiner has made no secret of it: the regulator will act if the industry does not. The warning klaxon has sounded.

Most agree the reaction from the non-subscription market has been swift.

Nominated by the ABI, Biba and the IIB, Royal & Sun Alliance (R&SA) chief executive Duncan Boyle chaired the working party looking into the matter.

Boyle set a challenging agenda when the group first convened earlier this year. The agreed code of practice was sent out to ABI, Biba and IIB members on 1 September.

Though they are not mandatory, the aim is to have the majority of brokers and insurers incepting the guidelines before Christmas.

In June 2006 the working party will review the strategy, and the necessary amendments will be made. And by the end of 2006, brokers and insurers will be effortlessly delivering contract certainty on all policies sold to the consumer.

Or not.Brokers have begun to find fault with the aims of the guidelines. In theory, the aims are considered "perfectly reasonable", while in practice brokers agree it is going to be a "challenging" year.

From the outset Boyle admitted the regional market would have to step up to the challenge. Persuading brokers to put contract certainty at the top of the priority list, however, could be a larger task than creating the plan.

"For most people contract certainty is not the most pressing matter," Community Broking Group compliance manager Terence Clarke says. "Persuading it to be so is going to require a huge leap of faith and a massive cultural change."

Allianz Cornhill strategy and planning manager David Barnett says the insurer did not "see this as a particular issue." He says the trade bodies had shown collective responsibility for contract certainty and it was their responsibility to coordinate the response.

Boyle, however, says insurers must show they are working with brokers to achieve the aims of the code.

"Contract certainty is a cultural thing," he says. "It is about making sure when you have agreed a policy wording is agreed on inception. And that the document is given the policyholder quickly."

Complex cases
Under the code, retail client policy wording must be delivered within five working days of inception or renewal. Commercial wordings must be provided within 30 days.

Alec Finch Group director Alec Finch says he is in favour of "any move to bring some standards into the industry". But, he adds delivering retails client wordings within five days "might be difficult to achieve".

"For most standard commodities it should be straightforward," says Finch. "It is only on the more complex cases that there could be issues. But it is important that we are seen to be moving in the right direction."

Clarke agrees: "Can it be done? Realistically, no it can't. It is going to require a huge investment in technology and people, and that means a huge cultural change."

To encourage the necessary "cultural change" the code of practice has a sting in its tail. In the June 2006 review brokers will be asked to name insurers that consistently fail to achieve the aims of the code.

But 'naming and shaming' could cause friction between insurers and brokers.

"This is going to end up with a blame game," one broker, who asked not to be named, says. "We will get brokers saying they aren't getting policies within the time frame given. They will start blaming insurers, and insurers will hit back."

The code also stipulates that insurers should be informed of errors within 14 days of receiving the policy. The amended policy should be returned to the broker or client within 14 days of being notified of errors.

This too could be a sticking point with some brokers.

Barnett says: "It is down to the broker and client to spot the problems with the policy after it is incepted. It is difficult to sort out problems with wordings if the broker hasn't managed to get it right."

But brokers say insurers have their own problems too. Clarke says: "Why are insurers making these very basic mistakes? The error rates for insurers is horrendously high, too high, and we are talking about stupid mistakes which come from insurers cutting costs in recruitment."

Boyle claims the problems facing the regional market are minute in comparison with the dilemmas facing the Lloyd's market. But the pressure is on to show that the industry can act collectively to make contract certainty a priority.

He says: "Achieving contract certainty will require some changes on all our parts, but in my view we have it in our power to work collectively as an industry." IT