Extra costs cannot be passed on to customers, says Andy Cook.

Happy New Year! Just when you thought your headaches were over, it seems that they are about to return all too soon. While the effects of the recent celebrations were quickly solved by popping a couple of pills, the industry's New Year headaches are set to throb throughout 2004. The FSA seems to have underestimated the risk transfer problem and will not have a definitive solution until January 2005 - as explained by Michelle Hannen. Without certainty how can you make firm plans?

Meanwhile, Biba has been surveying its members and uncovered startling statistics about compliance. It seems that brokers reckon that compliance will cost up to 18% of brokerage in the years after setting up a compliance system.

So extra costs of trading in 2005 will destroy profits for years to come, unless the costs are passed on to the customer. But with the market showing signs of softening in all areas bar professional indemnity and some liability risks, it seems that costs cannot be efficiently transferred to customers. So costs will be divided between insurers and brokers.