This year should be a momentous year for the insurance industry. For the first time in its history, there is likely to be a regulatory framework for anyone selling or advising on general insurance. At long last, there will be a level playing field with an industry-led solution with minimal government interference. Hopefully, the framework will last the test of time, meeting EU regulatory requirements and provide a stable environment for the industry to plan and move forward as a professional, well managed and customer focused sector.

Alternatively, it could be a shambles. The Office of Fair Trading (OFT) may not rule in its favour. If it does, the Institute of Insurance Brokers (IIB) may mount a legal challenge. Insurers may not play the game and still deal with non-members. Brokers may not join, calling insurer's bluff or indeed the Insurance Brokers Act may not get repealed because of parliamentary time, causing total confusion.

For the industry's sake, let us all hope that everything runs smoothly.

Another scenario is two regulatory bodies. This would not be a disaster and, provided they both meet the government's and EU's aims, then, while inconvenient, insurers may not object violently as they see regulation of brokers as being a job for the brokers themselves. However, having seen the IIB circular and proposed rulebook, I cannot see that this is a viable or indeed attractive alternative.

The survey is, of course, a farce. It was not independent and the questions were so biased as to make the results totally meaningless. It should be seen for what it is – a public relations gimmick.

Bearing in mind the declared position of a number of bodies, all international brokers, national brokers, members of the British Insurance Brokers' Association (Biba) and Lloyd's brokers have joined or will join the General Insurance Standards Council (GISC), together with most currently non-registered intermediaries. The Insurance Brokers' Registration Council (IBRC) mark II will therefore cater for small to medium-sized brokers only who will be sandwiched between the majors and smaller members.


Standards high and low

There will no longer be a monopoly on the use of the word broker and therefore IBRC mark II's only hope is trying to convince the public that its members are more professional than say, Aon, Willis, Layton Blackham, Smart & Cook and so on. This is a tall order made virtually impossible by the intended rulebook.

Instead of promoting a higher standard for its members, IBRC mark II seems to want lower ones. Examples are:

  • Lower levels of PI indemnity
  • Reactive monitoring not proactive – this is a cornerstone of GISC's regulatory framework
  • Less onerous solvency rules
  • No fines
  • A compensation scheme which has no funding
  • No monitoring of competence or training – this is vital if the industry is to move forward
  • Regulation by a body which has a commercial vested interest in the survival of its members
  • Nothing in its rules about sub-agents etc. which are the biggest cause of complaints by consumers.

    It is also most likely that the proposers would not satisfy EU requirements and the body would only be short-lived.

    If I worked for a member of GISC, I would have no difficulty persuading prospective clients that on the evidence of the rulebook, IRBC mark II is a second rate alternative and is used by firms who cannot satisfy the full requirements of GISC. This will produce exactly the opposite effect than the IIB wants.

    The cost of regulation is lower in the beginning but, as the insurance constantly tells its clients, you get what you pay for.

    The IIB has been an important catalyst for debate and has raised many important issues. It would have been even better value if it had been involved and challenged and changed from within. It has lost this opportunity and also the opportunity to set up an elite broking class.

    For the sake of the industry, lets hope that if the OFT rules in favour of the GISC, no legal challenge is mounted. A clear path ahead is much more beneficial to everyone than an American election-type legal fiasco.


    What it means for part-timers

    One of the areas of the GISC which has had little airing is the impact of the body on those who are not full-time insurance professional agents. The rules are quite draconian and will have a huge impact on the way insurance is sold in a number of industries. Anyone who sells or advises on general insurance has to be:

  • A member of GISC in their own right or
  • An appointed agent of an insurer or a number of insurers provided they are tied to one insurer for a particular class or
  • An approved agent for one broker.

    A non-member cannot be tied to more than one broker and cannot be tied to both an insurer or a broker. The consumer must always know which GISC member the non-member is representing.

    This rule creates formidable challenges for some sectors. Take the motor trader for example. They could:

  • Sell motor insurance for an insurer or a broker
  • Arrange free motor insurance for a manufacturer
  • Sell warranty cover for a specialist provider
  • Arrange loan protection for a finance provider
  • Advise on lease arrangements and residual value insurance for a lease company
  • Sell MOT insurance, emergency breakdown covers and other specialist products
  • Arrange insurance on hire cars for underwriters
  • Provide claims advice as an approved repairer.

    It is unlikely they can receive all these products from one insurer or broker and therefore they will have to become GISC members or stick to selling and repairing cars and act as introducers. Whatever the outcome, there is bound to be a fundamental change in the model and economics of the motor trade.

    Another sector is the property management/estate agency one. They sell:

  • Buildings cover
  • Contents cover for tenants and let property
  • Creditor cover for tenants
  • Tenants default cover for owners
  • Legal expenses covers
  • Search indemnities
  • Gazumping insurance
  • Buildings and contents on behalf of mortgage lenders.

    How do these proceed? Banks and building societies sell many bundled products through retailers, IFAs, mortgage brokers, motor trade and home improvement companies etc.

    These outlets may not be available to them as the sellers are unlikely to tie to them alone and indeed, will the lender want all the monitoring/compliance problems?

    IFA/mortgage brokers are another area. They may sell:

  • Health insurance
  • Loan protection creditor covers
  • Buildings and contents insurance on behalf of lenders, brokers or insurers


    No other option?

    Many of these will have no alternative but to become members of the GISC as well as the FSA.

    The list goes on: travel agents, tour operators, solicitors, accountants, dentists, vets, brown and white good retailers, caravan park owners, hotels, transport providers, car hirers, assistance companies, accident management companies, replacement goods providers, loss adjusters and so on. The tentacles of the GISC will be far reaching and change the selling processes and distribution channels immensely.

    This is not universally understood, but provides tremendous opportunities for those who can satisfy the requirements of the GISC and at long last produces the level playing field brokers have been crying for. Don't put this at risk!

  • Tony Cornell is an independent consultant and can be contacted at tony.cornell@ talk21.com.