Profits will vanish with compliance costs, but so might brokers, says John Jackson
In exactly 12 months from today, insurance brokers will be experiencing their first 24 hours of statutory regulation by the FSA. The omens are not good.
Some idea of the slow, lumbering dinosaur that the FSA has become can be indicated by the fact that apparently it will need almost an entire year to sort out the issue of risk transfer.
It beggars belief that the army of highly paid bureaucrats down at Canary Wharf have not yet come to grips with this issue, a central plank in the administration of statutory regulation.
Moreover, I am not surprised to read that the cost of regulation could wipe out smaller brokers. Those of us who have argued this for a long time have been dismissed as scaremongers. I suspect silence from the critics now.
However, I was surprised at the complacent comments of former Biba chief executive Mike Williams in last week's Insurance Times that there were real benefits to brokers from regulation "in terms of efficiency and protection".
No doubt that is true, but that will be no consolation to a broker working day in and day out just to send cheques to the FSA, rather than towards building their business. Brokers, by their very nature (and as the name implies) work on margin.
Kill the margin, kill the broker.
Perhaps one thing that should not surprise us about the FSA is that, apparently, it has raised eyebrows at the Treasury at implementing regulatory requirements that go beyond the requirements of the EU Insurance Mediation Directive.
Britain has a notorious reputation for over-eager enforcement of EU laws, so the FSA is in good company here.
But what of the latest order from Brussels on the EU-wide arrest warrant, whereby a UK citizen resident in Britain can be arrested and deported to another EU country for an alleged crime that is not even an offence in the UK?
One wonders whether legal expenses insurance will cover us for that one. I doubt it.
Unfortunately, regulation is not static. On top of FSA regulation the small firm faces an avalanche of EU and UK employment and discrimination legislation. Getting on with the job takes second place.
If there is one glimmer of light, it is that the smaller broker has been written off many times before, but they are a resilient bunch.
Towergate's Andy Homer recently predicted there could be only about 100 brokers left in the UK. That frightening prediction might turn out to be a slight exaggeration.