Complying with General Insurance Standards Council (GISC) rules is set to cost the industry more than £870m per year, Insurance Times can reveal.

GISC chief executive Chris Woodburn said compliance costs could be about 3% of a member firm's revenue.

The general insurance industry produced revenue of £27bn in 1999. If every insurance company spent 3% of its gross premium income on GISC compliance, the industry would spend up to £870m.

But consultant firm Cap Gemini Ernst & Young warned costs could rise as high as 10% for any firms that avoided joining and were later forced to comply.

Its report said: "Integrating and evidencing compliance with GISC will add 2%-3% to the annual cost base of compliance conscious insurers. Failure to act, however, could increase this to 7%-10%, if retrospective compliance follows the experience of life and pensions."

The company's regulatory consulting team head, Stephen Banks, said: "If you can proactively build GISC compliance into your training, technology and recruitment then you can dilute the costs."

Woodburn said: "It would be naive of me to say there would be no additional cost of complying with GISC rules, notwithstanding that we are enforcing good business practice."

He admitted some companies were voicing complaints about the costs of paperwork required.

"The rules are requiring a degree of record-keeping that firms are not accustomed to follow under existing practices."

Woodburn added he would be alarmed if the cost of compliance was higher than 3%.

Speaking later to Insurance Times, he said compliance costs would vary according to a company's need to adapt its practices.

He indicated the GISC was likely to undertake a survey of members to discover the true costs of doing business by the new rules.

"It's important to know the economic impact of the rules. It's an interesting piece of work which we will probably have to do if we go for exemption."

The GISC board opted this week to pursue exemption from the Competition Act to win official approval for its rulebook.

It has more than 6,100 members, with another 900 firms going through the application process.