Brokers now face many GISC dilemmas. To stay or go? To join or not to join? Tony Cornell thinks it's a tricky question
What have New Labour women got against the general insurance industry? First, Helen Liddell abolishes the IBRC and then Ruth Kelly imposes statutory regulation. Both were unexpected and done with little consultation; both left a vacuum and the decisions have cost the industry many millions of pounds that the customer will have to pay. Neither does much to protect the consumer.
The last decision was accompanied by typical New Labour spin that it was good for brokers as it gives them access to European markets. If that is the case, let the handful of brokers who wish to transact business in Europe have statutory regulation, with the remainder regulating themselves voluntarily without all the costs and red tape that the Financial Services Authority (FSA) will bring.
The decision was even stranger as the General Insurance Standards Council (GISC) was set up with Treasury blessing and guidance and after consultation with Brussels. The case for statutory regulation is weak. There have been no scandals in general insurance except perhaps in the selling of travel, creditor and extended warranty by non-insurance professionals, and these at the moment are outside the proposed regulation. Consumers are already protected:
It is hard to see what more is necessary and it is surprising the industry has not been more vociferous in objecting to this draconian approach, which introduces more red tape to small businesses. The result will be a speedy reduction in the number of choices the public has, as small brokers go out of business and access to true independent advice becomes more difficult. This will harm the consumer more than the benefits of some EU-driven regulation.
There is now a two- year vacuum with brokers in limbo. What should brokers do, bearing in mind another government U-turn cannot be dismissed?
For those who are already members of the GISC and have passed the audit, the decision is simple. They should continue with their membership as insurance for an easy passage into future FSA regulation.
For those who haven't joined yet, there seems little point in sending off an application until the position becomes clearer.
It is a more difficult choice for those who have joined, but have not had an audit. Their priority in the next 12 months is to concentrate on customers who are facing a volatile market in the wake of 11 September. Brokers making their decision need to take into account: the cost of leaving the GISC, for example, the cost of deleting GISC from documentation; the potential cost of complying under duress following an audit; the need to raise their own standards to improve their own business performance; whether the regulation will impact on commercial insurance at all and the potential impact of not being a member. This is likely to be low. Insurers are unlikely to cancel agencies and public awareness of the GISC will now be nil as no money is available to spend on promotion.
There is a strong case for those not to renew their membership, but to work to comply in their own time and not under GISC timescales.
Until legislation is passed, there must be debate and lobbying against statutory regulation. The stakes are too high. Remember what it has done to the independent life sector.
Tony Cornell is an independent consultant. Contact him at tony.cornell @btinternet.com .com