Brokers are feeling more and more frustrated with the FSA over ICOB regulation and unlevel playing field it will create James Sullivan reports on Biba's response
Have you heard? The rules are changing, again! Isn't it fun? All that time and effort to ensure that your business conforms to regulatory requirements and provides the best possible service to the client, and then they go and change the regime they spent so long putting together anyway.
Well, it certainly keeps everyone on their toes, doesn't it? After all, who would want the sort of silly situation where there is a coherent, settled regulatory environment, where the same rules apply to everyone and businesses are left to get on with the difficult enough task of remaining competitive?
It's not as if these sorts of tinkerings are on the periphery of all things regulatory, either. No, what appears to be happening, only a few years into the new regime, are some wholesale changes which are causing massive consternation, particularly amongst insurance brokers.
And one of the biggest causes for complaint is the FSA's decision to look at the Insurance Conduct of Business Rules for general insurance (ICOB).
The FSA has said it is considering a differentiated and more principles-based approach to ICOB regulation, which in practice looks like favouring personal lines insurers to the detriment of brokers.
This is because the new rules may lead to a further widening of the different disclosure require-ments, such that direct insurers do not have to comply with the sorts of onerous requirements that will apply to brokers.
No level playing field
Understandably, Biba has been up in arms over such a shift, which was first signalled in the wake of the publication of the Davidson review last year.
The crux of the issue as far as Biba is concerned is that changes to the rules will create an unfair situation where personal lines insurers are not regulated to the same degree as brokers, as far as disclosure requirements are concerned.
"We fundamentally believe that customers are entitled to the same sort of disclosure no matter where they buy their insurance," says Steve White, head of compliance and training at Biba.
White sets the issue in perspective: "I understand that the FSA's hands are tied to an extent by the Insurance Mediation Directive, because the Treasury will not allow them to turn off the requirements."
However, he says, this should not mean that just because they cannot let intermediaries off the hook they should relax the requirements for insurers. "It looks like the FSA will come up with a two tier approach. Certain products will be examined and some will be downgraded, so we are all waiting to see what they will be," he says.
At the moment the feeling is that these products will be in the personal lines sector, though the FSA has not officially confirmed this, stating that its final decision will not be unveiled until the end of the year.
"It will mean we no longer have a level playing field," continues White, who says that in practice this will mean that brokers will have a longer sales process and their weight of paper will be great-er than some of their competitors. This, he argues, can't be fair at all.
He adds that the changes don't even make sense from the consumers' point of view, as customers are already confused as to the difference between brokers and insurers in many cases and will not necessarily appreciate why different companies will have to operate according to different standards.
Biba is also furious that the FSA is spending brokers' money on campaigns like 'Insurance made easy' at a time when the financial ' ' situation for many brokers, facing a discriminatory regulatory regime, is far from easy. As he says: "It seems like the right hand doesn't know what the left hand is doing at the regulator."
Frustration with the FSA
Grant Ellis, chief executive of The Broker Network, is also extremely frustrated by the approach that's being taken, but he makes the point that it's not just going to affect personal lines insurers – all direct insurers will be advantaged in the same way.
"We had a case the other day which was a complicated animal feeds risk, and we had to produce a 40 page facts documents that outlined all the relevant information regarding the risk. On the other side, the NFU just sent in a three page quote. Now that's not a level playing field, is it?"
But doesn't he feel some sympathy for the regulator, whose hands are somewhat tied by the IMD?
Not really, is his response: "The IMD does not require the FSA to regulate direct insurers in the same way as brokers, but they took the decision early on that they were going to do that, so to backtrack on that decision is not logical.
"I can understand that the FSA may want to lesson disclosure requirements for simpler policies," he continues, "but it certainly does not make sense for more complicated risks.
"So yes, I'm disappointed that they've changed tack. Most brokers are continuing to adapt to reg-ulation, but if we're going to have a robust regulatory regime that is good for everyone it needs to be even handed."
Of course Biba is not exactly standing lamely in the sidelines hoping that somehow the FSA will change its mind. It is lobbying hard to ensure that the voice of brokers is heard on this funda-mental issue.
Unfortunately, there seems little prospect at the moment of the regulator changing its mind on this one, and there has been nothing to indicate that brokers can really look forward to a more equitable regime than seems likely under the current proposals.
But stranger things have happened, especially in the weird and wonderful world of reg-ulation. And where European Union driven legislation is concerned, anything is possible. We could be in for a few more surprises yet. IT