Insurers may seek to transact directly with customers if the FSA fails to amend its position on risk transfer, industry sources have warned.
As reported exclusively last week the issues surrounding risk transfer are being reconsidered by the FSA, which has told insurers that if they give brokers the authority to attach cover, they are also committing to accept the credit risk for client money.
"Insurers do not want to take their binding authorities back in house," said one broking source. "The reason they allow brokers to attach cover is because it is an easy and effective way of doing business."
But under the rules of CP190, which establishes the capital requirements for general insurers, insurers will be required to quantify the financial risks they are exposed to - including risk transfer - and set aside adequate capital to cover these exposures.
"The result will be that insurers will either cull their agency base, considering more carefully which brokers they give agencies to, or since they are taking the financial risk, cut the chain, minimise the risk and deal directly with customers," said one senior industry source.
"This could result in a sea change in the way general insurance business is done."