If brokers give up on the IBRC they will effectively be giving up on themselves and their clients, says Andrew Paddick, IIB Director General
IBRC is brokers' only protection
In my opinion, however impartially I try to evaluate the situation, it is totally inappropriate and illogical, for representatives of the following market sectors to be involved with the regulation of independent professional insurance advisers:
1. Risk carriers – the insurers with whom brokers negotiate contracts of insurance, premiums and claims settlements on behalf of clients as the client's advocate.
2. Direct writers – insurers whose primary business objective is to force brokers out of the market, as well evidenced in their often disparaging advertising campaigns.
3. Retail chains – which just "sell" insurance plus groceries, ladies lingerie, computers, brown & white goods, and so on (often at undisclosed commission rates of 50%, for poor quality wordings that often duplicate cover held by unsuspecting consumers).
Within the next year, all UK insurance broking practices will have a major decision to make, regarding their regulatory future, which will have long-term business implications, including those of their clients and consumers generally.
Basically, insurance brokers will have three choices:
Choice 1
To support and retain the IBRC administrative infrastructure as a self-regulatory body, for independent professional insurance advisers only. This body will enforce and promote the very highest standards of client care and protection.
It will be appropriately structured in a transparent and resilient manner – thus well able to justifiably withstand all or any external scrutiny, analysis or, challenge, by consumer groups, the media, competition authorities, government departments (UK & EU) and so on. In this respect, I am minded to invite a retired judge to act as chairman of the relevant regulatory committees.
As this regulatory body will be solely and exclusively regulating and promoting IBRC Registered Insurance Brokers as independent professional advisers who work for their clients, not for the risk carriers, it will have no conflicts of interest with tied/multi-tied agents, 'direct insurers sales or non-professional insurance retailers and the like.
When consulting with or, transacting business via an 'IBRC Registered Insurance Broker', there will be no consumer confusion whatsoever – just a guarantee that they are dealing with an independent professional adviser, who puts their interests first and foremost (even if on occasions this does incur a fee).
Choice 2
To join the GISC, perhaps along with 30,000-plus miscellaneous insurance sales outlets – if many of these ever join voluntarily, in any event and I can see no reason why they should.
The GISC is not now going to deliver the "level regulatory playing field" it claimed it would (although this institute never believed that it could – with such a wide church self-interest, self-appointed, non-transparent, highly secretive board). The GISC has published what amounts as one set of relaxed rules for non-core business insurance outlets (with total insurance transactions considerably larger than most brokerages) and more stringent rules for independent practitioners.
Should they join the GISC (perhaps in April 2001 when the IBRA 1977 looks likely to be repealed), brokers will share a regulatory logo with all and sundry, including those struck off by IBRC for gross professional misconduct. This can't be in the interests of firms that seek to stand out from the crowd as members of an exclusive and reliable profession.
From a financial perspective, the GISC proposes to charge most brokers considerably more than they currently pay the IBRC – and for providing much less in the way of consumer protection. Much will go to major accountancy firms, to conduct compliance audits at brokerages with clean records and no consumer complaints against them.
Choice 3
To do neither at the appropriate time (as mentioned above, likely to be April 30 2001) and wait for the GISC to secure the monopoly it seeks, backed up by an ABI/Lloyd's Underwriters Agreement for UK insurers only to deal with GISC members – with brokers facing the prospect of collective risk carrier agency cancellations, which they will have little prospect of defending on their own in the Courts (either UK, EU or both).
This debate is only starting to warm up and, fortunately for brokers and the IIB, there is still almost a year to make preparations. We must not underestimate, however, the likely skulduggery that persons who have serious conflicts of interest will attempt in order to save face and get their way, in order to eradicate insurance broking as a stand alone self-determining profession in the UK.
The institute will be issuing legal opinion during the next few weeks in order to clarify the situation. It is likely to hold elections later this year, once a firm date has been issued by government for the statutory council to be disbanded, although there are a number of important run-off implications, which if not properly addressed will prejudice consumer interests.
It is in the interests of the insurance broking profession and consumers generally to keep the IBRC going (albeit as a self-regulatory body) for the foreseeable future. In this respect, I do hope there will be a prospect of co-operation with the GISC, especially with regard to an exchange of regulatory information where appropriate.
The GISC is going to have enough on its plate in bringing the vast numbers of unregulated insurance outlets up to acceptable standards. And in this regard, like under the existing ABI Code, insurance brokers should be exempt if already properly regulated by IBRC. An acknowledgement and acceptance of this scenario by the GISC, ABI and Lloyd's would avoid any broker led legal challenge to Collective Agency Cancellation Agreements, leaving the field clear for the unregulated community to be brought into line.
GISC is here to benefit everyone
The General Insurance Standards Council will launch on July 3 and has been welcomed by the Economic Secretary to the Treasury, Melanie Johnson, who recently said that the government looked "forward to GISC fulfilling its objectives of maintaining and improving professional standards in the transaction of non-life insurance business".
By early June we will publish both the Feedback To Consultation and also the GISC Rules, which comprise the GISC Code, Practice Requirements and Disciplinary Procedures. Thereafter, we will be ready to receive applications for membership, which, subject to confirmation, will be effective from July 3.
Why should anyone, and particularly registered insurance brokers, join GISC?
We should remember that the catalyst for the development of GISC was that unless the general insurance industry was seen to be capable of self-regulation on a basis acceptable to the government it might invoke its residual powers under the Financial Services and Markets Bill.
The Government's vision of a single regulator both setting and, very importantly, also monitoring standards of service and financial stability for the benefit of consumers has now been adopted by the majority of the general insurance industry. In addition, the media that reports on it and the many consumer and other interest groups that anticipate the benefits also share the vision. The question became not "should we have a regulator?", but "when will we have a regulator and what should it deliver?"
In the 22 months since Ms Johnson's predecessor, Helen Liddell, made the initial announcement of The Treasury's commitment, GISC has been working and consulting with the general insurance industry, trade associations and consumer groups to draw up a system of regulation that, through compromise, is acceptable and effective, yet pragmatic.
The two consultation documents put a mark in the sand to spur the industry into engaging in dialogue with us. We never anticipated the second consultation document being rubber-stamped. We wanted industry comment and were well rewarded, with the number and quality of opinions from all sectors.
The Feedback to Consultation will reveal the diversity of comments we have dealt with, reflecting that GISC will be a broad church, embracing insurance companies, brokers and intermediaries, not to mention those for whom insurance is not their core business. Each is looking for a response that addresses its own specific requirements, at times in opposition to the needs of others.
However, weighing up the recommendations of the nine working parties, all of which benefited from very broad industry and stakeholder representation, the board has been able to draw up a code that will serve the general insurance industry well. The key to this achievement has been the overriding commitment to consumer protection via good industry practice.
Some may view GISC's initial voluntary status as a potential Achilles' heel. But, we believe many players in the general insurance industry will wish to become members of GISC before it becomes mandatory because as we implement our programme of consumer education, the good practices for which GISC stands will be recognised by consumers.
Sceptics also claim that as we are supported by a number of key players in insurance, we only listen to the large companies, insurers in particular. However, we have recognised the financial constraints on small brokers and intermediaries and reduced the annual fee initially proposed to a minimum of £200 where commission is below £200,000.
GISC is independent of trade associations or any industry sector and is determined to continue to act in the overall best interests of the industry. Sectional commercial interests have no place in the boardroom of regulators.
To enable everyone in the industry to benefit from GISC membership at a time of their own choosing, the proposed phased entry for different industry sectors will be replaced by an open system enabling any firm to apply for membership from day one. But this does not mean we have softened our stance on the standards we expect from members.
We have appointed Ernst & Young and PricewaterhouseCoopers as compliance monitors. They will undertake a programme of compliance visits to GISC members following registration. Ernst & Young will visit larger, more complex organisations, including all Lloyd's Brokers and service companies, direct writers and former IBRC members. PricewaterhouseCoopers will monitor the numerous sellers of primarily personal lines insurance including the large intermediaries, financial institutions, mortgage brokers, travel agents, retailers and other company agents.
Following compliance visits, GISC members will be required to take remedial action should weaknesses in compliance with the Code be identified. The approach of GISC is to be corrective rather than punitive. We believe this will also assist them in their quest for client confidence and satisfaction.
Consumer protection is at the forefront of GISC's philosophy. The consumer has the right to expect minimum standards of service and advice when purchasing insurance and should be dealt with by personnel who have had sufficient training in their roles.
The board's general approach to training and competence is to blend and balance formal qualifications for certain functions with demonstration of competence at the point of sale. Future policy here will be developed in consultation with the membership, the CII and other interested parties after the launch, but before the repeal of the IBRA, which was recently confirmed by The Treasury.
GISC will launch with a regulatory framework that will be evolutionary. Feedback from the monitors will enable GISC to assess the practical application of the new Code, identify areas that may require additional interpretation and issue future Code guidance as necessary. Any further development will, however, be tempered by a requirement that it must be appropriate and proportionate to the circumstances of the industry and will always reflect good business practice.
Widespread support and commitment to sign up to GISC at the earliest opportunity has been received from key members of industry groups including ABI, BIBA, AIIB and IBRC. As GISC chairman Anthony Howland Jackson recently emphasised, GISC will be launched with a strong commitment from across the industry and will make a major contribution to the raising of standards and providing protection to consumers.
