In the second Insurance Times round table discussion about broker regulation, the experts guess which key performance indicators will be measured by the FSA. Andy Cook chairs
September will be busier than usual for brokers this year. That's because as well as starting to line up your 1 January renewals and sorting out queries that built up over the holidays, you will be scrutinising the most important governmental proposals of your career.
It seems September will see the Financial Services Authority (FSA) publish the consultation document that will form the basis of regulations for non-life insurance intermediaries.
So with less than five months to go, how are current negotiations between the industry and the regulator going?
The simple answer is no one seems to know. "The silence is worrying," says AXA's broker development head Colin Calder. "There is nothing coming out of the FSA, General Insurance Standards Council (GISC), the British Insurance Brokers' Association (Biba) or the Association of British Insurers (ABI)," he complains. "We need some feedback."
Deloitte & Touche financial services consultant Alex Peterkin is not so worried. "The likelihood is the government and regulator will work out the details as they go along," she says. "All the signs are that the FSA does not want to be prescriptive."
However, what comes out of the FSA will be the toughest set of regulations for intermediaries anywhere in Europe. Peterkin explains the government is aiming for super-equivalence and that means having regulations that are just a bit higher than the rest of the EU countries.
While opinion is divided about how quickly the regulator will make key decisions and about how tough the regime will be, the round table agrees that brokers must start trying to work out how to comply with the FSA regime.
Calder says: "Three different groups of brokers are emerging: the smaller ones who don't know what to do and will ignore regulation until the last minute; the mid-tier who want to do something, but don't know exactly what; and the larger, well-organised brokers who already have an idea of how compliance will work and will have little trouble when the regulations come into force.
"Many of the brokers will be running to the networks so that they can get shelter."
Broker Network chief executive Grant Ellis interjects: "There's no way we can be the regulator for our brokers. We can provide support, not shelter."
Ellis reaffirms many brokers aren't taking action yet. "I was at a seminar recently and took a straw poll of about 60 people - hands up who was actually responding to consultation. And
I think out of 55 people, I had four hands in the air," he says.
For those with little idea where to start, broker support packages are beginning to emerge - such as the one being developed by Countrywide. Alternatively, existing training packages can provide a starting point. Grant Ellis extols the virtues of AXA's Campus online learning system, which also constructs user training records - an area that is highly likely to be covered by the new regulations. Ellis also mentions the Chartered Institute of Insurance's online training initiatives which are being launched this year.
Peterkin reckons there are ten packages on the market. "None of these packs meets every requirement, but many have some use."
It is very difficult to speculate what level of compliance will be required and in what areas. "We can't even afford to speculate that GISC levels will be enough," says Calder.
Peterkin reckons, while many of the key performance indicators will remain between regulator and company, some will be made public. She says there will probably be a league table of complaints.
While public league tables of performance will be a bitter pill for some, tough enforcement of regulations may be some time in coming. Peterkin says: "For six to nine months, regulation will be a desktop exercise. They will be asking questions and knocking on doors.
"The FSA will say: `Well I'm sorry, you're small enough that we're not really worried if we close you down. We're not really worried if we lose you to the market, because you've got zero impact, but we need someone to make an example of,' so, hey presto, you're closed."
A clearer picture of how wholesale broking will be regulated is emerging. It is understood that wholesale brokers will have to ensure the distribution chain meets regulation, says Robin Wood. That means either regulating their retail brokers or making sure the retail brokers meet regulatory standards, he adds.
So will insurance companies be expected to regulate their retailers? Calder says AXA will not be responsible for regulating its brokers, although the company will provide support, especially for its premier and prime brokers.
It is, however, understood that some insurers are proposing "tied agency" style deals, where brokers will be tied to an insurer and sell only its products; in return the insurance company will take on the risk of regulation.
According to Robin Wood, one idea emerging is one person within every broker should have some competence in general business, not just broking - a general insurance business manager would be able to provide sound business advice within a company. This would be especially useful for brokers from a purely sales and service background.
What the FSA should measure