The build-up to regulation is the calm before the storm, says Michelle Hannen

It seems brokers are under the cosh at the moment. Compliance plans must now be put into practice to ensure they're ready for D-day, 14 January 2005, and if that's not enough, they are also faced with negotiating new terms of business agreements (TOBAs) with their insurance partners - in some cases, brokers have in excess of 200 agencies.

These TOBAs, which will dictate the rules of trading between insurers and brokers for the foreseeable future, require serious thought, particularly when the issue of client solicitation is up for grabs.

For some brokers, an even greater problem is whether they can retain their existing agencies at all. Norwich Union has begun a cull of its smallest accounts with other insurers set to follow.

With all of this activity it would be easy for brokers to stop looking ahead. But taking their eyes off regulation would be a big mistake as the FSA remains a threat on the horizon. While its rules are finalised, brokers need to be thinking about the future implications as the rules evolve and change.

The cost of regulation is one area where brokers will see evolution. The FSA was originally expecting around 25,000 primary and secondary intermediaries to apply for regulation and this is the figure on which it has estimated its fees, and upon which the Financial Services Compensation Scheme levy is set.

With just over 8,500 applications received, regulation is certain to be a more expensive exercise than brokers were originally expecting.

The Financial Services Compensation Scheme also poses other, unforseen costs. While the FSCS currently has a cap set at £100m on the total amount it will pay out for insurance mediation-related claims annually, the figure is arbitrary, as it has shown its willingness in other sectors to increase the cap basedon claims experience.

The run-up to 14 January is the calm before the storm. While there are still choices to make, stand back and assess future costs. It might make you think again.