After an exchange of views with R&SA, Grant Ellis says brokers should not be afraid to investigate the financial health of insurers they do business with

In recent weeks the insurance trade press has been filled with speculation about the financial stability of Royal & Sun Alliance (R&SA), fuelled by an apparently endless stream of "bad news". This culminated in its mid-March fall from the FTSE 100.

Not one to miss an opportunity to express my opinion, I was quoted on the subject on the front page of this very publication on 13 March. Not surprisingly, the article prompted R&SA corporate business director Brendan McManus to call me within minutes of it hitting the Insurance Times website.

The ensuing exchange could be described as "open and frank", but it did culminate in McManus visiting me and my team in Harrogate to help us separate fact from fiction and to form a considered view of R&SA's prospects.

This is not the forum to explore the fine detail, but the evidence presented by McManus was compelling. What emerged was a picture of a business which, having confronted its problems, had set about putting its house in order - a painful process for any organisation, but particularly so for one with such a high profile in the UK insurance market.

It was possible to detect in the R&SA team a degree of quiet satisfaction as their plan appeared to be on track and nearing completion.

It was also very easy to detect a degree of "hurt" at what they perceived to be mischief makers keen on taking full advantage of their discomfort and adding fuel to the fire of the rumour machine.

I relate this as it illustrates the current unsatisfactory position surrounding the responsibility for researching financial security. In my mind it raises two important issues: how much information should insurers make available to their brokers to ensure that they do not overreact to speculation about financial strength; and how involved should brokers become in personally attempting to assess an insurer's financial viability?

Most brokers, if they do anything at all, tend to rely solely on the rating agencies for their information, but few, other than the nationals have any policy about dealing only with insurers that have a secure rating.

If a broker decides to take it upon himself to "dig deeper" and form his own opinion about the financial strength of a carrier by convening a formal solvency committee, he runs the risk of being sued by his clients if he gets it wrong. Far better surely to rely on the rating agency as responsibility can then be abdicated?

Yet if a few more brokers had dug a bit deeper into Independent's finances...

Insurers also face a dilemma - "he protesteth too much methinks" is cited as a reason not to be too proactive. But surely a point is reached where it is better that their side of the case is heard, rather than silence? In the absence of any concrete information the conspiracy theories are bound to start.

Whatever the rights and wrongs of the current state of affairs, FSA regulation will force us all to be more proactive, disciplined and considered in our dealings with such matters. CP160 suggests that if a broker is to call himself truly "independent" he will be forced to choose his insurer partners wisely, and to continually monitor and justify the position

In such circumstances insurers will have no choice but to respond in a much more proactive way than at present. This is one aspect of regulation that I feel cannot come soon enough.

Grant Ellis is managing director of the Broker Network