Confusion seems to be the outcome of last week's decision by the Competition Commission Appeals Tribunal (CCAT) that the Office of Fair Trading (OFT) was wrong to approve the General Insurance Standards Council's (GISC) rulebook.
The Institute of Insurance Brokers' (IIB) appeal had already forced the GISC to postpone the introduction of Rule F42 twice. Now it looks like F42, which would allow insurers to refuse to deal with non-GISC member intermediaries and brokers, cannot be introduced until late 2002.
The CCAT's 75-page finding says OFT director general John Vickers was “erroneous in law” to give the GISC negative clearance under the Competition Act 1998.
This means the GISC, should it decide to do so, will have to ask the OFT to consider its application for exemption from the legislation instead.
However, GISC chief executive Chris Woodburn, who is still studying the judgment with legal experts, has injected uncertainty to the whole affair. He has given no guarantees the GISC will apply for exemption and does not rule out attempting other legal avenues.
“We'll give careful consideration to the CCAT decision, particularly in the context of how effective regulation is to be achieved across the industry,” Woodburn says.
Delaying matters further
If the GISC does apply for exemption, Woodburn estimates it will take the OFT at least four months to consider the application.
Should the OFT then give the GISC a second go-ahead, IIB director general Andrew Paddick has vowed to launch “another robust appeal” to the CCAT. Given that the CCAT took three months to hear and deliver judgment on the IIB's original appeal, this could leave the industry without compulsory regulation for at least seven months – and more uncertainty.
To complicate matters, the OFT has never granted an exemption before. Allen & Overy partner Alistair Lindsay, who is an expert in competition law, says it is difficult to judge the time span involved, although a reasonable estimate would be six months to a year before F42 comes into force – if at all. Meanwhile, he says, the industry is left in stasis.
“I'd expect the GISC is in a period of uncertainty because it doesn't know if it can make its rules compulsory and the IIB can't get on with its own activities if it might be stopped down the line,” Lindsay said. “No one can move.”
To add to the confusion, the IIB is launching its own regulatory division. Paddick says the new division will be aimed only at professional insurance brokers, cutting out tied agents, direct writers and non-professional insurance sales outlets. “It will operate under similar, but enhanced lines to the Insurance Brokers' Registration Council (IBRC), which was disbanded in April 2001,” he says.
Paddick has offered to meet the GISC “in a genuine attempt to mutually resolve any exemption the director general of the OFT may consider granting the GISC”.
He says this is a “most sincere attempt” to achieve an orderly UK general insurance market and a move toward avoiding “the passage of further unregulated time”.
Paddick wrote to all insurance brokers last week, inviting them to join the new-look IIB. Regulation of the insurance industry was not particularly orderly prior to the IIB's legal challenge and critics would say the appeals have not hastened the move toward orderly regulation.
Support for the GISC
Following last week's judgment, the British Insurance Brokers' Association (Biba) made a guarded swipe at the IIB, saying the lack of Rule F42 has allowed unregulated insurance sellers to bring the industry into disrepute.
“The new regime, with Rule F42, would have ensured that only those that are registered can trade,” a Biba spokeswoman said.
“This will not now, unfortunately, be the case. Those that have brought about this situation have, therefore, done the insurance broking profession a great disservice.”
Biba chief executive Mike Williams says the whole ordeal has caused confusion among brokers. “We had a well supported, well considered regime, which about 7,000 firms have joined,” he says. “I can't believe they joined for any reason other than because they thought it was the right way forward.”
Certainly, in the weeks leading up to the CCAT's judgment, there was no mass exodus of nervous GISC members or membership applications withdrawn. By the end of August, the GISC had 5,342 members and 1,265 applicants. Only 44 small brokers had withdrawn their applications and seven their membership. It is too soon to know if there will be a rush for the doors now a decision has been made.