The approaching regulation may smother the diversity of the broking community, but you can stand out by doing that bit extra, says David Pentleton
Over the years I have watched 'regulation' travel along a learning curve - FIMBRA, PIA, GISC - and this can be seen in the structured, professional consultation process that the FSA has developed.
However, most brokers will still find something annoying within the near-final rules. One of mine would be ignoring accountancy principles and insisting on received income and the eventual marking down of goodwill to zero value.
For the latter, imagine if a new 'barbarian' buys up all existing brokerages. Overnight the value of the broker market would reduce to zero in the eyes of the FSA. This extreme example suggests that some moderation is required. It may be that the Basel II rules, on capital requirements, that will apply to banks in 2007 may influence change that takes account of business risk in a different manner.
Even these brief comments display the difficulties for regulators, because any insurer reading my suggestion that accountancy principles should be followed may disagree, given the acrobatics that they will have to perform to satisfy the new International Financial Reporting Standards that take effect from 1 January 2005.
Formerly known as the International Accounting Standards, it will require assets and liabilities to be valued on a different basis, using fair value principles - a costly and time consuming exercise for the insurance industry.
There has been a theme within regulation of harmonising systems so that customers receive a certain standard of service no matter whom they approach. This 'institutionalisation' defeats a popular business model that suggests success only comes from having distinctive competencies that differentiate you from your competitors.
Just satisfying the rules will only create a threshold competency that keeps you in
business. It may be that one critical success factor for the future will be emphasising to clients how institutionalised we have become by embracing FSA and going beyond the rules. It's at this point that I expect most
brokers to be quietly thinking that I should be institutionalised in a different way. But think about it.
Imagine one of your colleagues has been heavily involved in regulation. Instead of just churning out routine terms of business, you could build them around a PR article on how you have contributed to regulation, which makes you more trustworthy and reliable than the broker next door who didn't.
It is also interesting to note that on the one hand we have comment that brokers who operate professionally will easily adapt to FSA, while on the other we have most brokers reassessing their business models. Does this mean that most brokers are not professional or that complying with FSA is more onerous than is being suggested?
David Pentleton is compliance and HR director at Giles Insurance Brokers
