Policy would pay run-off costs and could replace FCA capital requirement

Broking group RFIB has launched a policy that would pay a broker’s run-off costs in the case of insolvency.

The policy would reduce or remove the need for brokers to set aside capital to cover the run-off costs under the FCA’s Appropriate Resources Threshold Condition.

The FCA’s capital requirements vary depending on a broker’s business, but some firms have to set aside 5% of their turnover.

RFIB specialty alternative products account executive Tony Key told Insurance Times that his company was initially targeting its product at insurance intermediaries, including brokers and managing general agencies.

He said it would be well-suited for firms bringing in between £10m and £100m of annual revenue and smaller network brokers, though the product would not be limited to companies in that range.

RFIB has used the policy itself for the past two years, and Key said the policy was able to replace RFIB’s funding  under FCA’s Appropriate Resources Threshold Condition.

Key said: “The FCA will never endorse this type of product because it looks at each broker’s circumstances separately. We can’t comment on other brokers’ circumstances. But certainly in the case of our own, this policy takes the place of our capital that we would need to meet those threshold conditions.”

He added that, in RFIB’s case, the policy was half the cost of holding the capital the FCA requires.

Key said the policy was a response to the FCA’s growing scrutiny of brokers’ capital requirements.

He said: “Brokers will have to more ably demonstrate the adequacy of the sum they are putting by.”

The policy is currently 100% underwritten by insurer Ironshore Europe, but more insurers could be added if higher coverage limits were required.

RFIB has appointed run-off specialist Randall & Quilter as its preferred provider of run-off administration.

Under the policy, R&Q will provide a quote for administering the covered broker’s run-off. The quote is capped, so R&Q will assume the risk of the run-off costs exceeding their quote.

If the covered broker goes insolvent, the policy will pay R&Q’s fees for running off the business up to the agreed cap.