Brokers are being warned by the two broker trade bodies not to sign contracts that are currently being issued by the UK's biggest premium finance house, Premium Credit.
Both the Institute of Insurance Brokers and British Insurance Brokers' Association have numerous objections to the sub-clauses in the contract that attempt to impose stricter agency agreements.
But there are two key points in the 13-clause document that have caused the most concern.
The first relates to an exclusivity arrangement and the second to the 12-month notice period required before changing supplier.
Biba chief executive Mike Williams said the contract wrongly passes responsibility, which should be Premium Credit's, over to brokers.
“The premium finance company should be taking the credit risk,” he said. “But they seem to want to take belts and braces precautions. It really is not the broker's role in life.”
His concerns were shared by IIB director general Andrew Paddick who said the “devil was in the detail”.
“There are a few obligations imposed on the broker that are worrying, but my main concern is clause seven which calls for the premium finance house to be sole provider.”
A Premium Credit spokesperson said there was no appropriate member of staff available to make a comment.
Premium Credit has been a runaway success story in the past few years. In 1999, it became the first UK premium finance company to fund more than £1bn in credit.
Market rumours are circulating that the company is now gearing itself up for flotation, and needs stricter contracts in place to secure financial backing and satisfy shareholders.
But the company's chief rival, Prompt, claims that the move is merely to cling onto its market share.
“In a period of technology freeing up markets, this is a retrograde step designed to protect Premium Credit from competition,” said chief executive Bob Golden.
“Brokers will make their feelings known.”
In a letter sent to one broker, Biba has questioned ten sub-clauses of the 13-clause document.
Six of the queries hang over the sub-clauses of clause two, which sets out the obligations of the broker.
“I am not sure that a broker could agree to be bound by the terms of a contract between a provider of credit and a client.
“The broker would not be a party to the contract and should not be bound by its terms,” it states.
And it goes on to state: “You should not be bound to retain any claims money following the cancellation of a loan for the payment of insurance premiums. There are legal implications about brokers lieu over claims monies.”
