For two and a half weeks Ian Ritchie and his colleagues travelled the country, holding 11 Biba/Insurance Times roadshows for brokers. The topic was FSA compliance and this is what Ritchie learned
Following the Treasury announcement last December that the Financial Services Authority (FSA) would regulate non-life insurance intermediaries, the British Insurance Brokers' Association (Biba) responded quickly by putting together a nationwide programme of roadshows. The idea: to help brokers prepare for statutory regulation. Although the precise detail of the new regulatory regime is still awaited, there are many areas where it is not too early to begin preparation.
Over the past two and a half weeks, we have listened to the views of hundreds of brokers in 11 roadshows across the country. Broker attendees ranged from sole practitioners to representatives of the global players, so that the views and feedback we obtained reflected a cross-section of the entire industry.
We found that the concerns and issues raised were broadly reflected nationwide. Most felt strongly that the entire community should be regulated. The European Insurance Directive in its present form caters only for those whose main source of income is insurance, and the Treasury must decide whether to extend that for the UK, to encompass travel agents, and sellers of white and brown goods and motor vehicle warranties.
There was a strong sense of irritation that such businesses may escape regulation. It is a difficult balancing act for the Treasury, given the finite resources of the FSA. We must hope that the history of complaints in these sectors and the consequent need for regulation outweighs the expediency of simply complying with the minimum requirements of the Directive.
Delegates were left in no doubt that it will be the responsibility of individual firms, as well as the trade associations, to strongly lobby the FSA at the appropriate time on this emotive issue.
Another frequent debate was on hard disclosure of commission. This ties in with the inclusivity issue, as the businesses referred to above often enjoy levels of commission only dreamed about by brokers.
The consumer bodies want to see transparency in earnings, but broker feedback was that very few were ever asked to disclose their earnings. If disclosure is required, then the battle for a level playing field with direct writers, and how they would quantify their acquisition costs, will raise its head.
Most brokers did not have a problem with disclosure, but concern was expressed over comparisons and perceived differentials. An example is where a broker receives more, in return for taking on more of the work - policy issue, claims handling and so on. The public would need to be educated to understand the issues, rather than look at just the percentage figure. It was universally felt that such education could present a difficult challenge.
Some felt that evidence of exam qualification should be held by those who advise the public. However, the balancing view was that brokers should be able to demonstrate a training and competence regime relevant to the requirements of the staff and the business, with consumer protection uppermost. This latter course was felt to be more appropriate than simply demonstrating the ability to pass a generic examination.
The recently published Insurance Times/Tax Briefs Training and Competence Toolkit for brokers attracted a lot of delegate interest, and will certainly assist brokers in planning their training and competence schemes.
Leading on from training and competence, some forums considered the question of whether the new regulations may embrace an Approved Persons regime. If such a route were chosen by the FSA, then it would be possible that one or more principals would need to demonstrate their competences and qualifications, not only in insurance, but also in the wider responsibilities of running a regulated business. These could embrace subjects such as compliance, UK law, and business management.
Staff and recruitment issues were debated at length. One of the FSA's core statutory duties is in what they call `reduction of financial crime'. Money laundering is a key component of this subject.
This is an area that historically has been taken more seriously on the financial services (life and pensions) side of the business, but clearly, general brokers will have to address it more closely in the future. Part of this will involve more robust employment and recruitment procedures.
Other topics that arose included what key performance indicators (KPI) a regulator might look at, in determining whether an onsite monitoring visit may be appropriate. Drawing parallels with the life side in this respect was not helpful as the business is short tail, but issues such as complaints, high staff turnover, and over dependence on an insurer or insurers were felt to be possible indicators.
All in all, it was an interesting few weeks on the road. I take my hat off to Catherine Nicoll, who was in her final stages of preparation for running her first marathon, when we embarked on the tour.
Her early morning excursions to gymnasia, running through unfamiliar industrial estates, and along the canal towpath in Nottingham, demonstrated the real commitment of would-be marathon runners.
Similar commitment and tenacity by the broker community in seeing through the transition to statutory regulation is going to be needed. We cannot afford to leave it to become a sprint for the finishing line, two years from now.
That was highlighted in Leeds, where a delegate mentioned a competitor who had decided to do nothing, and to sell his business shortly before the appointed day. Nicoll pointed out that as it is likely that it will be a criminal offence for him to advise his (ex) clients after the Directive is enacted, why should anyone want to pay for something that they could, in effect, acquire for nothing.
Food for thought, for those who would wait and see.
How the roadshows were set up
Biba chose Robin Wood Associates as its partner to work with brokers in getting ready for Financial Services Authority (FSA) compliance. In view of my many years experience at the sharp end of broking, and previous regulatory experience as an Insurance Brokers' Registration Council (IBRC) councillor, Wood asked me to join him in putting together a programme to help brokers to understand better the issues to be faced.
Catherine Nicoll, of the General Insurance Standards Council (GISC), was able to give an overview of the current position of GISC, and how it intends to handle the transition to statutory regulation. Many delegates were GISC members, and it was generally felt that the ongoing commitment was a professional approach to take.
Biba chief executive Mike Williams attended a number of the venues to support the Biba view that those who begin to plan for change now will be the ones in best regulatory shape in 2004. Ably supported by colleagues Paul Garland, David Crump and Peter Staddon at various of the venues, Biba outlined a mature and hands-on approach from a trade association committed to helping members who want to arrive at the FSA entry point as well run businesses.
The main purpose of the roadshows, hosted by Insurance Times, was for the speakers to brief brokers on what is likely to come. But, in the open forums we gained valuable feedback on broker concerns over regulation. We are now feeding this back to Biba, so that in his meetings with the FSA, Mike Williams has a full brief on current broker thinking.