FSA to track brokers with overseas binders

The FSA has concerns about brokers dealing with unauthorised overseas insurers, Insurance Times has learned.

The concerns relate to brokers who have binding authority agreements with certain offshore insurers.

According to well placed sources, the FSA has put together a supervision team focusing on this issue, amid fears that a number of brokers are deliberately or unwittingly acting as agents for unauthorised companies.

It is illegal for a broker to hold a binder or settle claims on behalf of an insurer which is not directly authorised by the FSA, or which does not have passporting rights into the UK.

Insurance contracts issued in these circumstances are unenforceable and the underwriting agents face criminal prosecution.

Biba head of compliance and training Steve White said: “Intermediaries are able to arrange insurance with any insurer on the planet who is prepared to deal with it.

“However, if the insurer’s name does not appear on the FSA register, it is not legal for an intermediary to operate a binder or hold a covered facility on its behalf, nor to settle claims on its behalf.”

A spokesman for the FSA said: “We have nothing to say at this stage.”

The news comes as the FSA took action against an insurance manager who operated two offshore insurers which were writing insurance in the UK without authorisation.

The two companies of David King, CIC Costa Rica and CIC Greece, were not approved in the UK, Greece or Costa Rica. They had issued more than 1,800 insurance policies to UK businesses through underwriting agencies.

The FSA would not comment on whether action would be taken against these underwriting agencies.

Earlier this year, the FSA admitted it had concerns about the solvency of a number offshore insurers within the European Economic Area outside the EU. It later said that these issues had been “addressed” (News, 26 April).