Biba, IIB and London Market brokers unite in `private customers' row

Biba, the IIB and the London Market Brokers Committee (LMBC) have rejected the FSA's definition of private customers.

In Consultation paper 160: insurance selling and administration (CP160), the FSA proposes that brokers treat all commercial clients with turnover of less than £1m a year as individuals. According to Biba, this would result in the reclassification of about 3.7 million companies, or 97% of the UK's businesses. Biba has proposed a change that would reduce this by one million.

In their joint response to CP160, Biba and the LMBC said that, while they supported the FSA view of differentiating the level of protection afforded to different customers, they did not believe small businesses should be given the same regulatory protection as individuals.

"It is illogical to...apply a level of statutory protection at a similar level to the unsophisticated private policyholder," the associations said.

Biba and the LMBC said such a proposal would be administratively "difficult and costly" because of the need to establish turnover and supply policy documentation to potential clients before they commit to buying a policy.

Instead, Biba and the LMBC propose that all incorporated companies be treated as commercial customers, regardless of turnover, and that only unincorporated businesses be classified as private customers. But, with an estimated 2.7 million unincorporated small businesses in the UK, the proposal would still be burdensome for brokers.

Biba and the LMBC said the proposal could result in businesses purchasing unsuitable, unnecessary or poor value cover. "Our principal concerns are that this will actually disadvantage many small business customers," they said.

The IIB said, to classify "SME's as `private customers'... would not only unjustifiably extend the boundaries of our `nanny state' considerably, but it would of itself create a number of serious problems within the regulatory arena".

The deadline for responses to CP160 was last Monday. An FSA spokesman said submissions would be reviewed and a feedback statement released in a few months.