Growing disquiet over FSA regulation

Small brokers are coming under increased pressure from larger intermediaries as competition intensifies in the commercial market, a survey of brokers has found.

According to accounting firm Mazars' annual Insurance Broker Survey, 47% of respondents said larger brokers were the biggest threat to their businesses. This contrasts to only 12% in 2005.

Mazars said the middle market was becoming "increasingly congested", with the bottom end of the market "being squeezed" by direct and internet insurers and larger intermediaries.

Mark Grice, head of the broking group at Mazars, told Insurance Times: "There is a pincer movement happening in the market with brokers potentially losing business at the bottom end.

"The view there is that people are used to buying personal lines insurance through direct insurers.

"Now those techniques are being used to sell smaller-end commercial insurance and that might cut out the broker."

Competition in the middle market is expected to continue over the next 12 months as brokers attempt to maintain profitability.

Grant Ellis, chief executive of Broker Network, said: "It is always going to happen in a soft market because firms need to replace profit from premium deflation.

"The larger consolidated brokers are now looking in places where historically they wouldn't have bothered looking before."

Stuart Randall, managing director of Leicester-based broker Brett and Randall, agreed that larger brokers were "lowering their sights" in terms of client size.

But he said big brokers were failing to deliver the personal service, which small and medium-sized brokers had historically provided.

He added that "fragmentation" of the market, as specialist schemes become more popular, posed the biggest threat to smaller brokers.

Consolidation the biggest worry

  • Consolidation continues to be a key issue with 87% of respondents expecting the number of brokers to decline in the next 12 to 18 months
  • Nearly 70% of respondents did not employ any new graduates in 2005 underlining fears of a future skills shortage
  • 36% of those asked cited a lack of product development by IT providers as an obstacle in realising IT value
  • 47% of brokers see regulation as the key to the development of the UK insurance industry.
  • FSA 'no value to clients'
    There is growing unrest among smaller brokers over FSA regulation, according to the Mazars survey. Brokers told the survey that regulation is excessively costly and fails to add value for clients.

    Some 81% of respondents felt that regulation had no impact on client confidence in the industry, with 53% believing that it actually had a negative impact - a decisive shift from 2005, when the figure was only 25%.

    Steve White, Biba head of compliance and training, said: "It reinforces what our members have been telling us: those firms that had dedicated supervisory contact with the FSA were pleased with the relationship and said that it worked well."