It's been a year of bias and scaremongering
It's been a year of bias and scaremongering
I was interested to read an article by Grant Ellis of the Broker Network (December 7, 2000), asserting that the recent survey of brokers carried out by the Institute of Insurance Brokers (IIB) as to whether brokers wish to be registered by IBRC mark II or GISC was totally biased and should be taken with a large pinch of salt. On the same page of the publication there were two other articles supporting GISC and attacking the IIB. There were no articles in support of the IIB stance – now that is bias.
Over a period of more than a year now, brokers have been subjected to a never-ending campaign of recommendation, misinformation, and scaremongering by supporters of GISC, many of whom have been instrumental in its formation and have their own vested interest in its success.
The ABI, AIIB, Biba, Lloyd's and others have recommended or required their membership to join GISC, an organisation dominated by insurers, large broking firms, direct insurers, bank insurance services and other national retail outlets such as the AA. Many of them view the demise of the IBRC and the marginalisation of Andrew Paddick and the IIB as the removal of an irritating champion of the smaller broker. Not one of these organisations sees any merit in continuing IBRC-style regulation, a proven system which has very successfully regulated “volunteer brokers” for 23 years. Interestingly, this includes IBRC chairman Alan Gavaghan of Biba, and Mike Slack of AIIB, both of whom have sought election to the council. Perhaps the palatial GISC offices in London are more to their liking.
Insurance professionals should ask themselves: if their administration of IBRC had been taken over by Biba, AIIB or a separate independent body, would the aforementioned organisations be so anxiious to see its demise? I think not.
We have been subject to misinformation in that it is repeatedly stated that the government requires a single regulator. As I understand it the government has called for all providers to be regulated, but it has not stated that this must be a single body.
Scaremongering has featured heavily, we are told that unless a single regulator prevails, we will be subject to draconian regulations by the FSA. As far as I am aware no such statement has been made by any government official.
Given the huge task facing the GISC in bringing under regulation 25,000 to 30,000 hitherto unregulated businesses, surely the obvious and sensible approach would be for the GISC to concentrate their efforts on these new entrants, leaving IBRC mark II to continue to regulate brokers for perhaps another three or four years, after which time the question of whether a single regulator would be more effective and would better serve the public interest could be viewed.
Am I alone in thinking that the current onslaught on Andrew Paddick, the IIB and IBRC has more to do with the fact that Andrew vigorously defends the interest of his member brokers and has regularly outstripped other trade associations with new initiatives such as Solvency Rating Service, Policy Wording Analysis, Broker Direct and Insureright? Could this be why there are so many long knives out?
Most people hate monopolies and believe competition is healthy and encourages excellence. I would urge the GISC to concentrate their efforts on bringing under regulation the diverse range of insurance distributors who have chosen to opt out of regulation since the 1977 IBRA Act. Surely it is the duty of the appointed (not elected) board members of the GISC to concentrate their efforts on the unregulated distributors and to put aside professional rivalries and in some cases old scores, for the good of the insurance industry and insuring public.
At the same time, insurance companies might concentrate more of their efforts on improving their appalling service standards, which are both detrimental to the interests of the insuring public and insurance professionals.
Whicher Boylan & James
Where's the logic?
I have been trying to understand the logic behind the differing solvency margins for GISC members who treat premiums on
an earned or received basis. In the former case, members take commission when they invoice the client, and in the latter when the client pays.
A member who operates on an earned basis with a commission income of £1m has to have a solvency margin of £200,000 while on earned it merely has to be solvent. A large number of brokers operate on an earned basis, which on the face of it is normal accounting practice. When an invoice is raised, the client becomes a creditor of the broker for the commission and for the client account for the amount due to the insurer. A number of accounting packages quite rightly take this approach. Few prospective members have this level of free assets and therefore have to change their systems and procedures which will affect cash flow and cost money.
Why the difference? I have discussed this with a number of people, including GISC, and have not had a convincing reason. They allude to a higher credit risk but is this 20% or indeed is it higher? Consider the following:
n A broker conservatively gives a maximum average credit of six weeks, excluding premiums payable under installment plans. The later could be 40% of their income. Based on £1m commission income, the difference is 60% x 6/52 = 7%. To be in the same position as a broker on a received basis he needs a solvency margin of 7%, not 20%. This is likely to be the maximum. However:
n All money due to insurers is in a separate client account. This is net of commission
n In the event of insolvency, the client is protected with the insurer becoming a creditor of the failed member. This situation applies because the member acts as an agent of the insurer for premium collection
n When a broker gets into difficulties, it all becomes academic anyhow because he raids the client account first and no regulation can stop this.
So the client is fully protected whatever happens and the rule would appear to be there to protect the insurer. If it is a Lloyd's requirement because of their poor credit control then the rule should only apply to Lloyd's brokers. Insurers don't need it as they are big enough to operate their own credit control policy and GISC should not do it for them.
Perhaps GISC or someone who is more knowledgeable than me could come up with a sound reason as to why the difference exists and how it protects the consumer more. I can't see it.
Choice the way forward
As insurance brokers, if for a few moments we set aside any irritation we may feel about the RSA letter (December 21, 2000) we can then consider the issue through the eyes of the consumer in order to determine the way forward. Let us first remind ourselves that insurance is the ultimate tool of trade in risk management which is founded on the bilateral duty of good faith, a premium for a promise – not a pie-crust – thus insurance is all we need and trust.
In the real world, it being necessary to recognise which side our bread is buttered, it follows we must be truly independent of insurers if we wish to earn the trust of our clients, yet we must be able to negotiate with insurers as equals on their behalf. How then do we solve the paradox of being independent yet able to talk to insurers as equals?
I think, others may agree, as independent insurance brokers with a local point of sale we have the edge because we are able to provide choice, and this includes either dealing face to face or by use of the internet, an option not available to insurers who have abandoned their high street presence. If therefore we protect our collective identity by use of the certification mark Your Local Insurance “GP”. This already exists, is non-profit making and ready to use, and the public will have the means of knowing who it can trust. This leads me to suggest it is time for the large plc insurers to re-discover they too are the subject to the duty of good faith which includes allowing the consumer to choose their own insurance broker.
Insurance Advisory Service
Backing the IIB
What is it with people like Ian Mantel, whose poor man's version of a Tony Bridgland letter you published before Christmas (December 21, 2000)?
If it had not been for “AP” (Andrew Paddick), the real mafia would have eaten into our ranks far more than they have.
In case I have missed the point completely, I assume Mantel and Grant Ellis are right behind the GISC. Well, that is their choice, but don't let them tell me that you can have
a voluntary code which is then made compulsory, because if you don't volunteer then you can't join in the game. Why so scared of “proper” regulation rather than the “tick sheet mentality” of monitoring visits?
Perhaps Mantel, and more probably Ellis, have themselves been cosying up to the industry mafia and have been advised to
One telling line in a mailshot from one of the sponsors of GISC reads: “...membership will become mandatory, when the competition authorities have given appropriate clearance”.
Am I naive in thinking that “when” should be replaced by “if”? Probably. Still, all power to the IIB.
Vale Insurance Brokers