As an ex managing director of a successful provincial brokerage, I read with interest the letter from Richard Mikula of Topaz Insurance (24 October, Insurance Times). It certainly made me revisit the article he refers to and cross referencing this with the Mediation Directive.

Both refer to 4% of premiums received by the broker, rather than "brokerage", to which Mikula refers. As a consequence, I am not really sure what point Mikula is making.

As for the identity of the "regulatory expert", if your correspondent were to read the article, he would see it is attributed to Robin Wood. Perhaps the blinding sun meant that Mikula couldn't see the Wood for the trees!

The option in the Directive refers to a solvency level of 4% of premiums received, and consequently would not apply to any premiums by-passing the intermediary and being paid direct to insurers.

To correctly re-work Mikula's example, where he suggests a total brokerage received of £2m, if £500,000 of this brokerage were derived from premiums paid to the broker, and the notional rate of commission was (say) 10% then the gross premium for this part of the business would amount to £5m.

Applying the proposed 4% would indicate a solvency margin of £200,000.

I would not hesitate for a moment in agreeing with Mikula or any other broker that this is an almost impossibly high margin for most brokers to maintain, but the fact is that the formula is one of the options that the FSA will be required to consider.

I would suggest, with respect, that Mikula spends a little more time in understanding the serious issues that are going to affect the broker community in the next two years, rather than taking a cheap shot at a topic that he has not taken the trouble to research.

Had he taken the trouble to read the CPD piece on the subject of solvency, written by Robin Wood, (3 October, Insurance Times) he would have noted the article simply confirms that which appears in the Directive, as an option.

Now that the Treasury Scope document is out, with the FSA consultation to follow, it is vital that brokers airing their views in the press speak from a position of credibility, because, make no mistake, the regulators will also be monitoring what is said, and forming their own view on the community they are to regulate.

Ian Ritchie,
Director
Robin Wood Associates.

Send letters to: Insurance times, 30 Cannon Street, London, EC4M 6YJ or Email to
Andy@instimes.co.uk

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