There has been much speculation about the number of firms that will fail to get authorised or will exit the market before 14 January 2005. But focusing on application levels misses the point. The market will be affected in the long-term by how well businesses embrace regulation at their core. Our philosophy is that by using the momentum of change to challenge strategic decisions made by the firm, compliance can, and should, pay for itself.While regulation will dictate certain procedures, a review of your firm's activities will highlight whether they are all financially viable or whether some offer an unrealised opportunity. There is a need to recognise core strengths and streamline activities. This approach will leave a firm better prepared for the future beyond January 2005, when regulation will increase further. Without this clarity of direction, those firms that carry on business as they always have will find their margins increasingly under pressure.Many insurance brokers will either outsource compliance advice or restrict their involvement to monitoring activities. While this approach may be understandable, in our view it manages the 'pain' of regulation but loses the 'gain' from it. An outsourced consultant can offer advice and monitoring services but not effectively challenge the way you work. We took the decision early on to develop our own compliance function. This has proved worthwhile, as the team understands the work ethic and culture and can play a role in continuously developing these key elements of our business. Ask yourself where you can improve or where you can maximise your revenue. Some areas to consider are:
Distribution
Re-examine your suppliers - what is their strategic fit with your future markets? What binding authorities do you have? Are you making the most from wholesaling any services you offer? Can you take advantage of new insurers emerging in the UK? How do you manage your suppliers? What analysis and monitoring do you conduct to ensure that these remain stable and offer quality products and services? What is your benchmark? Systems
How do you use your core policy systems? Are they driving your process? Will this process be cost effective post January 2005? Do you know how much it costs to manage a retail client each year? How do you price your services? How are you calculating fee structures? What is the standard by which staff performance is measured? New revenue streams
Do you make full use of a finance provider? What non-regulated services do you offer or could you offer? Are there opportunities to form an introducer relationship with other parties? What expertise do you possess that is unique in your local area? Do you market it?Once you have your processes and plans in place, you must be able to monitor them. For a firm of any size, this area has huge ramifications. If you can nail this part of the handbook you have a strong base from which to move forward. In practice this means:
Identifying key roles and responsibilities Structuring your business to achieve your business objectives Creating accountability - delegate specific key tasks to appropriate individuals Setting up management information reports Arranging formal meetings to check and challenge activitiesThe majority of the FSA's handbook must be interpreted appropriately by the business. This means there is no one solution. You will only know if you are correct if the FSA or the courts challenge your business practice. If you spend time now, you can document standards that can reduce the business risk in other areas, such as errors and omissions. Fundamentally, the FSA's rules are concerned with good business practice. The FSA is interested in outcomes and will not dictate the precise detail of any requirements they may have. This is your decision. As a business in a regulated world your challenge is to set standards and embrace them as normal working practices. Engage with regulation, use compliance as a catalyst for change and reap the benefits.
Phil Barton is group commercial director of the Jelf Group
