Compliance Zone

The debate surrounding risk transfer has been dramatically re-ignited with the news (Insurance Times 11 December) that the FSA is taking a "dim view" of plans by some insurers to avoid taking the risk for client monies.The FSA has said that if agency agreements give brokers the authority to attach cover on behalf of insurers, for example through a binder, then the client money risk lies with the insurer.If this is the case, insurers cannot rewrite their agency agreements to exclude risk transfer. The only way to avoid risk transfer will be to withdraw brokers' authority to attach cover. But this new development throws up many unanswered questions. Does issuing a cover note equate to attaching cover? Will insurers be able to minimise exposure to risk transfer by issuing separate agency agreements for the lines of business not covered by the binders? If so, will brokers have to maintain a separate client account for funds where risk transfer applies? Urgent clarification is needed if the question of risk transfer is to be properly resolved. Michael Faulkner