The average costs of regulation have skyrocketed by 40% since 2019, said the trade body
Broker trade body Biba has called on government to reduce the cost of regulation on insurance brokers in its latest manifesto – published this week (24 January 2023).
In the document, entitled Managing risk – delivering stability, Biba explained that the cost of regulation for brokers currently sits at an “all time high”.
The manifesto cited research from London Economics on the direct and indirect costs of FCA regulation on the sector that showed average direct regulatory costs had increased by 40% since 2019.
This research also showed that brokers in the UK experienced higher average direct costs of regulation than other jurisdictions like Spain, Germany, the Netherlands and New York state.
The total of direct and indirect regulatory costs for UK brokers was equal to 8.1% of insurance intermediation fees and commissions earned in 2021, according to this research.
Biba called on the FCA to reduce the cost and disproportionate burden of regulation to allow UK SMEs and larger businesses to benefit more from the financial protections that insurance brokers can provide via insurance products.
It also asked government to consider whether the current financial services regulatory regime was proportionate to the risks posed by the broking sector and suggested the use of Brexit freedoms to amend this structure, where it was deemed appropriate.
Fair value assessments
Biba also zeroed in on the impact of the FCA’s requirements for firms to submit fair value assessment forms.
These fair value assessments require brokers to demonstrate fair value for insurance products they recommend to consumers and take significant time for brokers to produce, since they can be dealing with hundreds of different products from multiple insurers.
In the manifesto, Biba said “the roll out of fair value assessments has proved to be one of the most problematic and resource-intensive tasks the insurance broking sector has ever had to put into practice”.
It added: “[This requirement] has required all firms to divert significant levels of resource in order to comply.
“This has negatively affected productivity and, in many cases, required firms to either incur additional financial costs to hire new employees to achieve the required outcome, or has left them unable to devote their full attention to meeting their customers’ needs.”
David Sparkes, Biba’s head of training and compliance, told Insurance Times: ”The fact that the regulator wants to see customers get fair value from the products they buy is laudable and that’s actually in brokers’ DNA as well – otherwise they wouldn’t have the long term relationships they’ve got.”
Sparkes added that a conservative estimate of the time needed for a small broker to provide these assessments for 30 agencies would take 30 weeks of continuous work for an employee.
”That’s 30 weeks of not being able to serve clients because you’re too busy with administration just around fair value assessments,” he explained.
Biba launches 2023 manifesto with focus on risk management and stability
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Manifesto 2023: Cost of regulation for brokers at an ‘all time high’