The devil's in the detail of CP174. But has the FSA got its data right, asks Andy Cook
The future of thousands of brokers hangs on a document that was published last Friday. The 350-page CP174 represents the FSA's thoughts on the prudential requirements for insurance brokers [and mortgage firms]. It's a daunting tome, not only in size, but in scope too.
While Insurance Times has trailed some of the headline requirements over the past month, the devil is in the detail. So what are we to make of the detail? One of the most striking details is that, according to the FSA, there are 5,000 primary insurance brokers without professional indemnity (PI) insurance. The FSA says that, under new laws, these brokers and 24,000 secondary insurance brokers (such as vets who sell a bit of pet insurance on the side) will require PI. At least this is good news for PI underwriters (of whom there are precious few) and brokers.
Where does the FSA get its information? It seems incredible that there are 5,000 brokers without PI in the UK. Indeed it seems incredible that any insurance company would provide agencies to brokers without PI. And if the FSA has got its figures wrong on something as fundamental as this, where else is it going wrong?
It seems that the biggest impact will be in the way client monies are held. As Insurance Times trailed last month, brokers will not be allowed to earn interest on client monies as they sit in their accounts and will not be able to receive commission until premiums have been paid up. While there will be a two-month hiatus as brokers shift their commission income periods, the effect of investment returns will pose questions about the long-term survival of many brokers. Can you survive?