Despite the IIB's objections, the vast majority of the insurance industry appears in favour of the GISC as its overall regulator. But will it have the power to keep the industry in check? Christine Seib reports….

In October 1999, just before the General Insurance Standards Council (GISC) revealed its rule book, chief executive Chris Woodburn assured a Chartered Insurance Institute (CII) conference that “there will be no strutting about by my staff and no kicking down doors. We will not be filling the courts with recalcitrants from day one”. So what sort of regime can the industry expect?

Since the Insurance Ombudsman Bureau was established in 1981, it has dealt with more than 70,000 disputes between insurers and policyholders. Even given that not all cases were successful, this monumental figure indicates that some insurers are behaving badly. There is no way of knowing how many brokers are also doing the wrong thing, since there are no concrete figures available – a consequence of the insurance industry's long-fragmented state of regulation.

In the past, Lloyd's monitored its own people. The Insurance Brokers' Regulation Council (IBRC) made sure brokers segregated their funds and got professional indemnity cover. Pricewaterhouse-coopers was contracted to ensure intermediaries followed the Association of British Insurers (ABI) code. Brokers and insurers were overseen by their own trade bodies. Insurers had to abide by the requirements of the Trade Department and the Financial Services Authority. The Ombudsman made decisions on complaints against insurers.

No single regulator
But there did not exist one organisation that watched everyone, ensuring all kept the same high standards and were subject to the same disciplinary framework for failing to do so. The GISC was brought in to change all that and, although it still faces some potential legal stumbling blocks, it looks like it is here to stay. So does it have the teeth to tame the industry?

The GISC's emphasis is on helping its members comply with its regulations, rather than punishing them for non-compliance. Its monitoring head Steve Barrow says most compliance failures will result in suitable remedial action, being agreed between the GISC, its monitors PWC and Ernst & Young, and the member concerned.

If this does not resolve the matter, it will be referred to the GISC's enforcement committee, which will consider the case and decide if a penalty is necessary. If the member is unhappy with the outcome, there will be a full hearing of the case before an independent tribunal. If the case is still not resolved, there will be a further full hearing by the independent disciplinary appeals tribunal.

The penalties can range from private or public censure to unlimited fines, conditions on membership, compensation for customers, suspension of membership and, at worst, expulsion. It may not sound like much, but Rule F42 requires GISC members, both insurers and intermediaries, to deal only with intermediaries that are also GISC members.

Unless the appeal by the Institute of Insurance Brokers (IIB) succeeds, insurer members expelled from the GISC could continue to deal direct with customers and through GISC intermediaries, but they would be forced to make it clear they were not members. Expelled intermediaries would be unable to place business with GISC insurers. In other words, the GISC will have the power to severely limit the livelihood of individuals and bring companies into public disrepute.

Softly, softly
Not that the GISC is making threats. As Woodburn promised, Barrow's attitude is very softly, softly when it comes to regulation. “The approach is corrective rather than punitive,” he says. “F42 definitely gives us some sharp teeth because it means if they're excluded from the GISC, it takes away those avenues of business, but my hope is that we never have to use such extreme powers.”

Barrow says an enormous amount of care went into setting the regulations and penalties, which will be allowed to evolve with the industry. “Market practices will change and develop,” he says. “We don't want to influence the market, but react to changes for the consumers' benefit.”

There is consensus among some of the main players that the GISC has enough bite to ensure compliance. Lloyd's was so confident that it handed over regulation of its brokers to the GISC last July. Its regulation director David Gittings, who is also a GISC board member, says he is perfectly satisfied with its powers. “We at Lloyd's came to the conclusion last summer that we could safely allow the GISC to carry out many of the regulatory duties of the Lloyd's Market,” he says.

However, Lloyd's will continue to regulate its own agencies and underwriters, which will not be required to join the GISC. British Insurance Brokers' Association (Biba) spokeswoman Jennifer Weller says many of the standards of the soon-to-be-defunct IBRC had been carried over to the GISC. “It would be no good having a toothless tiger and I think the GISC satisfies us in that respect,” she says. But Biba will not be relaxing any of its own standards, now there is an all-encompassing watchdog. “If a member does something wrong, we couldn't do the GISC's work for them, but we would obviously expel them from Biba membership,” Weller says.

PWC general manager of monitoring, Ray Stibbards, whose department was contracted by insurers to oversee compliance with the ABI code, says the GISC's regulations are excellent. He also reports a genuine industry desire to comply. “They obviously follow many of the existing codes but the rules are far more extensive and therefore much more effective. It's a pragmatic and fair approach to compliance,” he says.

Unsurprisingly, Andrew Paddick, director general of the IIB, is not an admirer of the GISC's approach to monitoring compliance. The GISC's main detractor says the IBRC's approach is better. “It's complaints-led,” he says. “My view is you don't need inspection for people who are compliant. There's enough work inspecting the people who are not compliant. You target the areas where there are problems, you don't send the boys round if there isn't a problem. People would resent it.”

Others would say that there is no reason to worry if you have got nothing to hide. Instead, the word is that some firms are actually requesting monitoring as a free business audit.

GISC may have been launched in the summer of 2000, but these are still early days and the body will not be fully up and running until the end of this year when Rule F42 comes into force. The GISC has teeth, but whether it has bite will not be known until then.

The General Insurance Standards Council Board

Anthony Howland Jackson, chairman

Chris Woodburn, chief executive


John Barton, Jardine Lloyd Thompson

Simon Bolam, EH Ranson

David Gittings, Head of Regulatory at Lloyd's

Tony Latham, Royal & Sunalliance Group

George Lowe, Automobile Association Insurance Services

Chris McKee, Direct Line

John Miller, Anchor (UK)

Bob Newton, CGU

Michael Pendle, Abbey National General Insurance

Mike Slack, Road Runner

David Slade, Perkins Slade

Andrew Young, NFU & Avon

Dr. Oonagh McDonald

The Rt. Hon. Baroness Dean of Thornton-le-Fylde