Nearly 4,000 intermediaries are facing significantly increased annual costs under the new GISC regulatory regime, which was unveiled in draft proposal form this week.
The industry as a whole faces comprehensive new training requirements and consumer-protection measures. But it is some of the smaller ABI-monitored intermediaries who will find the new code of conduct hardest to live up to.
For the first time, intermediaries will be paying annual fees - 0.1% of commission and fees, with a minimum of £300. In addition, they will be required to increase their Professional Indemnity cover to at least £1 million, with an excess of £10,000 per claim - and this at a time when the PI insurance market is tightening.
They will also face solvency tests requiring them to maintain a margin of £5,000 excess of current assets over liabilities. And, most damagingly of all for many intermediaries, they must segregate all premium income from the money required to fund their businesses. This is a current ABI requirement that it is not always strictly observed. Many smaller intermediaries have relied on insurer money for business cash-flow, and could not otherwise survive.
Opinions differed among the trade associations over the impact of the draft proposals. Mike Slack, chairman of the Association of Insurance Intermediaries and Brokers and a member of the General Insurance Standards Council, said he did not believe these requirements would present problems for many intermediaries.
"There will be some people who can't comply with the segregation of insurer money. But a £300 fee for a £300,000 firm is not a problem. The basic question firms need to ask is whether they should be in business at all if they can't meet these very reasonable standards."
Mike Williams, Biba chief executive, commented: "I don't think the vast majority of our members will have trouble with the fees. To us, they're sensible, affordable and justifiable. Where the reaction will come from is from the ABI-monitored intermediaries, who've never paid a regulation fee before.
"When you also consider the major shift in training requirements that is being proposed, I think the entry standards have become significantly higher than in the past. I believe that hundreds of firms are likely to face significant difficulties meeting these new requirements."
Chris Woodburn, chief executive of the GISC, said although he hoped intermediaries would be joining GISC from February next year, they would not be expected to meet all the requirements from day one. "We will have to have a transition period. At least half of the 30,000 people coming under GISC will never have experienced regulatory oversight. Many of them would not recognise a customer-money segregation account, let alone be able to implement one."
Woodburn said that lack of industry data meant that estimating the correct fee levels had been problematic. At the GISC's first roadshow this week in Glasgow (see below), GISC chairman Anthony Howland Jackson said early-joiners may be offered a discount.
10 key proposals of GISC regulation
1. Brokers cannot mix insurance money with their own
2. Minimum of £1 million PI cover must be held
3. £5,000 solvency margin required
4. Audited accounts required
5.All fees disclosed
6. Commission and overriders disclosed on client request
7. New requirements including minimum 12 hours professional development each year
8. Grandfather rights
9.Brokers to pay 0.1% of commission and fees
10. On-site inspections