As the FSA begins a review of its rules, three brokers assess the effectiveness of regulation 15 months on

Mark Coffer, managing director of Marrs Insurance Brokers
The FSA is ineffectual in helping to create capable and confident consumers. Have they seen their own website? From a consumer point of view it is very difficult to navigate.

On the fourth goal of soundly managed and well capitalised firms who treat their customers fairly, the FSA is striving towards that goal, but there is still some way to go.

The FSA should address the issue of disproportionate costs of regulation on smaller brokers. There should be a much fairer system [of FSA fees] weighted toward bigger companies. Inevitably it will be the bigger companies who will cause bigger problems in the long term. There should be a much fairer structure.

We have always been regulated. Has FSA regulation benefited us? No. I see a lot more cost, and a lot more work for something I was already doing. The problems which the industry has have not been stopped by the FSA. And at the end of it all, it will be the small brokers which get clobbered.

The FSA should be as member-friendly as it is customer-friendly. They don't want to take responsibility for advice it gives to brokers so they will not give an opinion.

Brokers need more help. They want to be seen trying to help the consumer, but by helping brokers they are helping the consumer.

In short, I suspect most people don't want to be buried in the paperwork we send to them. I have customers telling me that it is my job to read the paperwork and deal with it, but I still have to send it to them.

The FSA has probably helped the minority of people, but I don't think that the majority has been helped at all.

Richard Wynn, director of Lloyd's broker Howden UK
From our point of view the standardisation of documentation and the presentation to clients suits us. It is good for us as a company to be working with different protocols which reduce the chance of making mistakes and create less conflict with clients.

It is has increased the paper trail quite dramatically, but it is good to examine the things that day-to-day you take for granted. We have concentrated hard on the company's infrastructure and procedures and invested in that.

Those are the rules now so you have to embrace them. If you find things that don't work perfectly, simply take it to the FSA and hopefully it will be changed. There is no point in being dinosaurs.

It is worth the cost [of complying] because what ever way you look at it, you have to do it. I would say it has helped us as a company to learn a bit more about ourselves and it has helped push certain things in the right direction like contract certainty, how we handle client money and how we manage conflicts of interest. Before it was just a grey area that you talked about but then stuck your head in the sand hoping it would go away. Now you have to deal with those issues. It makes the whole procedure more straightforward for everybody concerned.

Regulation has started the process of sorting out the wheat from the chaff and having genuine accountability through regulation. Before a taxi driver could have set up an insurance broking house but these days it is a lot tougher to do that. Regulation will continue to do that so we will have better standards and a much more efficient industry.

Customers do probably benefit, but they probably don't appreciate it. Clients probably feel that they are getting the same kind of service as they were before but now there is more paper work along the way.

As long as the FSA listens to the brokers and look to enhance the rules and regulations adjusting them to fit in with our working procedures then it will become a little easier. The FSA has to be prepared to listen to the people at the coal face and make changes, that way you still get strict regulation, but it is more practical in day-to-day operations.

Andrew Holman, chief executive of John Holman & Sons
How effective the FSA's regulation is, is the big question that everyone is asking. It is a major achievement to introduce the regulation that they have, but how well it does remains to be seen.

Clients simply don't see the benefits of the FSA's regulation and to be honest, they don't really understand what the FSA is all about.

Regulation has cost a lot of money for clients, intermediaries and insurers and in my opinion it is in danger of becoming a stifling innovation.

To make the regulation more effective, the FSA perhaps needs to police what they have introduced because the worry is that the industry will be in danger of falling into a two tier system rather like the EU, where the British institution plays by the rules but everyone else ignores them.

The danger is that some firms will apply the rules but those that ignore them will go unpunished. That is a huge concern for those that have spent large amounts of time and money on being compliant.

ABI: Benefits of regulation outweighed by costs
In March, the ABI published research, which found that the benefits to consumers of FSA regulation were vastly outweighed by the costs. These findings will be fed into the FSA's effectiveness review.

Its research found increased paperwork and longer call times were discouraging customers from shopping around, and was detrimental to consumers to getting the best deal.

In many cases, regulation was not improving customers' understanding of the products they had bought.

In the case of standard insurance products, the analysis estimated an overall cost to consumers of £360m.

The ABI is calling for a more risk-based approach to regulation, which focuses on those sectors of the market with less competition between providers, such as payment protection insurance sector. In the case of a market such as motor, less regulation is desirable.

ABI head of market regulation Chris Hannant said competitive markets such as motor "would regulate themselves".

FSA review will look first at conduct of business rules
In September 2005, the FSA announced it would be conducting a review of the effectiveness of the FSA regime.

The review will begin this month and will focus on retail conduct of business requirements and on the effectiveness of the FSA's regime "in meeting the intended outcomes for consumers" set out in the FSA's consultation process leading up to the start of general insurance regulation.

At the time of announcing the review, Clive Briault managing director of retail markets at the FSA said: "The review will take into account our determination to find ways in which we can improve the effectiveness of our regulation and can contribute to the better regulation agenda.

"If the review leads us to conclude that changes to our rules and guidance are necessary, we will, of course, consult on these in the usual way. However, we need to recognise that our ability to make changes is constrained by European Directive requirements - in particular, those in the Insurance Mediation Directive and the Distance Marketing Directive".

The FSA said the review would be built on three core features:

  • To encourage feedback from firms and other stakeholders on what they think is effective or ineffective in the regime. The FSA is keen for the industry and other stakeholders to come forward with views on the areas which they believe could benefit from re-examination
  • * To undertake consumer research to see whether the intended benefits of the regime are beginning to come through - especially through consumers making good use of the information firms are now required to provide to them

  • A continuation of the FSA's thematic and firm-specific work to check that the industry is complying with the regime.

  • It is expected that the initial findings of the review will be published towards the end of 2006.