There are political, personal and professional reasons for arguing about the future regulation of general insurance selling and there is even pride. But there is another P-word that also comes into play and that word is practical.
Choosing one option over the other will make a significant practical difference to the way the market is regulated and those changes could hurt.
Those brokers registered by the Insurance Brokers Regulation Council operate under very different regulatory regime to those intermediaries currently regulated under the Association of British Insurers code. Choosing a version of one over the other would mean swathes of brokers or intermediaries suddenly facing an upheaval in the way they are regulated.
Andrew Paddick, director general of the Institute of Insurance Brokers, says the IBRC regime is best. The two main areas of its regime are the financial rules and the disciplinary structures for handling complaints. And it is a breach of financial rules and professional misconduct that have been the two main reasons for expulsion from the IBRC.
Most brokers are unlikely to hear a peep from the IBRC providing they can present audited accounts – by a chartered or certified accountant – demonstrating the segregation of their own funds from those held on behalf of their clients. Also providing they can show they have the necessary PI cover.
"It's complaints led," says Paddick. "My view is you don't need inspection for people who are compliant. There is 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."
Disciplinary procedure
Those not sending in their audited accounts are chased first and if they still fail they fall into the disciplinary procedure, which is the same for when a broker has a consumer complaint laid against it.
First the IBRC sets up an investigating panel, which can issue warnings and try to resolve the matter. If that fails, then the broker is hauled in front of a full disciplinary hearing.
"These are open to the public," explains Paddick. "They are just like a full Magistrates' Court. There is a solicitor for the council and the accused can have legal representation. The hearings and the findings are public and the broker can be excluded from trading as a broker and that fact reported by the Press."
Non-IBRC intermediaries face a different regime. The ABI introduced its code of practice in 1988 and it is fair to say enforcement was almost non-existent for many years. It increased compliance monitoring in March 1997 but even now only 49 out of about 55 general insurers active in the UK currently enforce the code.
The introduction of a central compliance monitoring unit, outsourced to PricewaterhouseCoopers (PWC), has made a difference. PWC's unit has a database of about 3,750 firms ranging from one-man-bands to giant multi-site companies. Intermediaries have a single 15-page form to complete each year, which is followed by a standard visiting procedure.
According to Ray Stibbard, the unit's general manager, the forms ask about the business, the number of employees, the measures in place and training taken to ensure compliance, the percentages of the business from each type of activity and so on. It also checks the company has adequate professional indemnity cover, as required under the code. Once the forms land on the intermediaries' desks, they have 21 days to complete and return them.
Stibbard says the unit has in previous years sent out two reminders to those not returning forms, which gives them until about October to provide the requested information. If the forms are returned, the unit feeds the information into a computer, which then prioritises the firms that appear to have the greatest risk of not complying with the code. The unit has four regional offices, each with a manager, assistant manager and two officers. All four carry out inspection visits, which are booked with the intermediary with as much as three or four weeks' notice.
"We ask for copies of sales documentation and client letters and such like in advance," says Stibbard. "All visits are carried out to a set of very strict modules that involve collecting information and looking at and testing areas of compliance. It's designed to take between two and four and a half hours."
Tony Capon of Confidential Life and Insurance Consultants in Romford is one intermediary who has had a visit from the compliance unit. He says it was a useful experience. "A young man and a young lady came along and went through the procedures. I was quite impressed with the way they managed the whole thing. They present you with a fictitious case and one of the things they make sure of is that you make clear to the client any charges they will face. I've no complaints about the way it was handled at all," says Capon.
Code breaches
But it's not always that simple. "The results are then discussed with the compliance manager and he judges whether breaches have taken place," says Stibbard. There are three levels of breaches: serious, less critical and other observations. IFAs which are notified that they have serious breaches will be given 14 days to respond and produce an action plan for tackling the breaches. They will also have to tackle less critical breaches but the monitoring unit will not require to see the evidence. The proviso on this is that any less critical breaches found in the following year are immediately treated as serious. Other observations are just pointers to best practice within the industry.
All the information is confidential and, providing the intermediary meets the standards required, none of the information is handed to the insurers or the ABI. If an intermediary fails to respond to the questionnaire or to serious breaches, then the unit has no option but to contact the ABI.
Harry Johnston is the man Stibbard calls. Armed with the information about the intermediary and a list of the six insurers with which it does the most business, Johnston decides which insurer to call.
"I almost without exception choose the insurer with the largest account as I hope the goodwill built up between the insurer and the intermediary will help resolve the case," Johnston says.
He writes to that insurer with details of the failing and asks the insurer to make contact and put pressure on the intermediary to comply with the code and contact the compliance unit. The intermediary then has four weeks to reply. If they fail to respond, Johnston contacts all 49 insurers signed up to the compliance monitoring service and they all write to the intermediary giving the same date on which they will withdraw their agency agreements.
Struck off
As a restriction on trade, the system is registered and approved by the Office of Fair Trading, giving the struck-off intermediaries nowhere to go. And some have been struck off. In May this year, 23 intermediaries had their agencies cancelled for not returning forms and another seven had their agencies withdrawn for failing to correct serious breaches of the code. In October last year, 39 firms had their agencies cancelled. A further five were expelled a fortnight ago. Unlike the IBRC, however, those excluded remained anonymous.
The ABI insists that will change before the year is out, perhaps stealing the IBRC's last advantage. ABI lawyers are looking to change the code slightly so that it can publish the names of any firms that have their agencies cancelled. "We want to make sure that everyone understands what happens if they don't comply with the code," says the ABI's manager of insurance distribution, Sarah Rimmington. "We're trying to move as rapidly as possible and it will definitely be introduced this year."
Paddick says professional brokers will be outraged if they are forced to submit to such a regime. "You can just imagine a spotty lad from PWC coming round who has never worked in insurance trying to tell a professional broker how to run his business," he says. And he adds that there are people running businesses under the ABI code who have been excluded by the IBRC. "What is the GISC going to do with someone who has been thrown out by the IBRC for professional misconduct?" he asks.
Consumer support
But consumer groups are increasingly supporting the compliance monitoring methods employed by PWC and have called for them to be a model for monitoring claims handling too. And professional insurers – those with CII qualifications – face gruelling compliance work within the life industry and are unable to claim they are undermined by it, so it is likely to fall on deaf ears in GISC.
But another P-word, price, comes into play. The cost of the PWC monitoring is huge and many believe it is a sledgehammer to crack a nut. With the cost of that regime likely to fall, in part at least, on the regulated intermediaries, many will wonder whether or not the extra price is affordable. And compliance visits will incur their own costs too. Filling in a 15-page questionnaire, sending the requested paperwork and having senior staff sit through a four and half hour interview, only to be told everything is OK, will be a costly waste of time.
Or will it? Aren't we forgetting a couple of other P-words, profit and policyholders? Most policyholders don't have enough insurance. Most policyholders don't trust insurers or insurance salesmen. There is a massive untapped market for more general insurance products. If tougher, more expensive regulation, perhaps with some casualties along the way and with all the hassle it brings even for those with nothing to fear, means more consumer confidence and more purchases, it will mean more policyholders and more profits. Perhaps then it will have been a price worth paying.
