Brokers must pay £500 for every client complaint about them made to the Insurance Ombudsman, under new proposals for the regulation of the profession.

Membership of the Ombudsman scheme will be a key General Insurance Standards Council (GISC) condition to which brokers must adhere or have their licence to trade revoked.

The AiiB estimates the fee will be around £500 based on what the Insurance Ombudsman currently charges insurers per claim handled.

Furious brokers first heard about the fee at a meeting of AiiB members in Essex last week attended by association chairman and GISC board member Mike Slack.

A row surrounding Ombudsman costs looks set to dominate the agenda in advance of a series of GISC roadshows which start in late October.

A number of brokers at the Essex meeting said that the plan could put them out of business because of the threat from "have-a-go" clients who would see the Ombudsman scheme of a way of forcing their hand in disputes. They said they would end up paying "go-away" money to clients.

One broker told Insurance Times that he would cease doing business with a number of his clients whom he believes will abuse the system if the measure goes through.

The same broker said he had never had a complaint from a client but feared that once the scheme was public knowledge he would receive vexatious complaints.

There were guffaws from those assembled over a suggestion that brokers could claim on their professional indemnity policy in the event of an ombudsman complaint. It was pointed out that a typical PI policy carries an excess of £750 per claim.

Meanwhile, Slack appealed for ideas on how to soften the measure but warned "the government wants a complaints and redress system put in place". He urged brokers to turn out in force at GISC meetings and present their case to the GISC. "It is still open for discussion," he said.

The debate about funding is taking place against another over what shape the Ombudsman for the general insurance industry will take. The GISC is anxious that Walter Merricks, the new super Ombudsman at the Financial Services Authority (FSA), should assume ultimate responsibility.

For his part, Merricks wants to see if there is a role for his office with regard to general insurance. He is certainly not willing to assume the responsibility for the estimated 30,000 GISC membership from day one of the FSA going live in October of next year.

However he did signal that he would be willing to deal with complaints from consumers in relation to the general insurance activities of IFAs.

"There is an argument for those who are both IFA's and general insurance brokers to become part of the FSO for the entirety of their business from day one," he told Insurance Times.

That would avoid the necessity to be a member of two ombudsman schemes.

Meanwhile the closing date passed this week for applications to replace Laurie Slade as the £110,000 a year job of Insurance Ombudsman.