Networks offer a refuge for brokers from the regulator, but it will cost their independence. Their decision to join is not easy, but it will have to be made very soon, says John Jackson
If there is one crowded marketplace in the insurance broking world today, it is the growing number of networks and insurers lining up to offer brokers compliance help.In fact, so many firms are trying to get in on the game that it may have to become an all-ticket match, as it seems that the desire to maintain the high street broker market has never been more active.As the insurance broking industry moves to within 12 months of statutory regulation by the FSA, many networks have seen a new angle to recruit members: we will do your compliance for you.For many brokers this is crunch time - they are between a rock and a hard place. They must meet the compliance standards required by the FSA, and the temptation to join a network in order to stay in business may be too great.
Competitive productsBrokers would, therefore, be joining a network for the wrong reason. There are substantial advantages to networks, mainly through highly competitive products from a panel of insurers, and reduced administration costs. Moreover, there is safety in numbers. Like the origins of the trade union movement, solidarity in belonging to one major organisation is better than trying to go it alone, unless the broker is in a niche market, where competition may be less severe.However, brokers have been given ample time to prepare for FSA regulation, but if their first submission fails, they will go to the back of the queue. They may then find their re-submitted compliance application may not be approved until close to the end of the year. And those firms that joined up with the GISC and the Insurance Brokers Registration Council (IBRC) are, it seems, to receive no special favours from the FSA.All they will get are "credits" for having agreed to voluntary registration with the GISC and IBRC. It is difficult to understand what more these brokers must do to satisfy the FSA.Insurers, not surprisingly, are deeply concerned at the threat that compliance can mean to the future of the already seriously depleted broker market. AXA has now joined the likes of Norwich Union and Zurich in moves to help brokers become compliant, a win-win situation for both insurer and broker. If anything underlines the importance of the high street broker, this initiative by key insurers is it - and, although there is a cost to the broker, the bottom line is simple: do you want to stay in business? So why take the risk of going it alone? If someone else is prepared to guide you through the minefield, why take the chance of stepping on a mine? Compliance could well turn out to be another nail in the coffin of the independent broker, but they have been killed off prematurely before. As Mark Twain wrote of his premature obituary: the report of my death is exaggerated. So will the networks turn out to be knights in shining armour? If many brokers are to stay in business after 1 January 2005 when FSA regulation kicks in, brokers certainly need some help.
Independent supportOn the other hand, brokers may feel that independence is more important than joining a network, which is why the GISC initiative in launching an independent support service, Compliance Solutions, is so important - and very welcome.Whichever choice brokers make, they are going to be out of pocket. But at least they will be in business. With statutory regulation there are no grey areas: either you are authorised or you are not. However, brokers should be wary of committing themselves to a deal they may subsequently regret. Our old friend 'caveat emptor' should be consulted at this point. But if brokers have not made up their minds by now on the route they want to take to compliance, then they need a rocket up their backsides. Time is not on their side.Waiting in the wings are those on the acquisition trail and 2004 could be a good hunting season for them. Whatever 2004 holds for brokers, at least they can be confident about one thing - one way or another, the industry certainly wants them. And that, at least, must be comforting.