Property managers face tough decisions in the face of FSA regulation

Property management, whether we are talking about a large commercial development with multi-million pound assets, or a small individual property manager with a residential portfolio, requires a variety of specialist knowledge and expertise.

A broker specialising in the property owner/managing agent field is critical to providing the necessary expertise to ensure that the Property Manager's most important assets are fully protected.

It is of course a fundamental role for the property manager/managing agent to arrange and co-ordinate insurance on their property stock, for their clients. This year, however, sees the most fundamental shift ever in the way that managing agents will have to handle their insurance arrangements.

From January 2005, the industry will be regulated by the FSA, in adherence with the EU Mediation Directive. It has only recently come to the attention of property managers/managing agents that this sea change in regulation does not just apply to brokers.

The fact is that most managing agents/property managers will also come under the FSA's umbrella, if they continue to carry out what the FSA deem as regulated activities, come January 2005.

So what are regulated activities? The list is comprehensive, but includes the following:-

· Providing any sort of advice or assistance in the arrangement of insurance cover for clients of property managers.
· Introducing a customer or client to a broker.
· Helping a client fill out a proposal form, or sending the client's proposal form to a broker and insurer.
· Recommending a specific insurance policy to a client.
· Liaising with a broker or insurer on a client's claim, and handling the claim in any way.
· Collecting premiums before inception of an insurance contract.

What then are the options for the property manager? Either apply for full regulation by the FSA, become an Appointed Representative, or become an Introducer Appointed Representative.

The Appointed Representative role requires a broker to accept responsibility for ensuring that the property manager meets the FSA Regulations. In reality, however, this is not a soft option. The property manager would firstly need to approach a broker, and gain acceptance from the broker to act as an Appointed Representative, and would still have to comply with all the FSA Regulations.

Most property managers who wish to continue carrying out Regulated activities post-January 2005, have come to the conclusion that if they are going to apply for an Appointed Representative status. But they may as well apply in full to the FSA themselves. The latter would certainly give them far more flexibility.

The FSA Regulations, and impact on property managers cannot be understated. While the actual physical cost of applying to the FSA for approval, for most property managers, will not be great, there is certainly no doubt that for many of the smaller property managers adherence to the FSA Regulations will require a major change within their organisation.

Some property managers, particularly those smaller companies, are seriously considering whether the add-on costs will make the continued handling of insurance for their clients financially viable.

However, those property managers who do decide to apply for regulation by the FSA, could well see a substantial added value post-January 2005, as in the post-Regulation market only those have been approved by the FSA will be able to trade in regulated activities.

Undoubtedly, the rules are somewhat complicated, and there is no better solution than to approach a Specialist Property Broker for advice on how Regulations will affect managing agents.

Simon Taylor, ACII, FCILA, partner at Reich Insurance Brokers.

Simon Taylor, Danny Lopian, can be contacted for advice on 0161 834 8877 or via e-mail at simon.taylor@reichinsurance.co.uk or danny@reichinsurance.co.uk