At last, GISC has published its rulebook. The regulations are being considered a living document subject to refinement over time. Already, it is believed that they are reconsidering the solvency rules to take into account market practice on when commission is taken.
Nevertheless, brokers and independent intermediaries should now be in a position to make informed judgments as to what to do about regulation in the future. But are they?
To read and understand the rulebook is definitely a wet-towel job; it is a daunting and time-consuming task. I suspect many people will put it off for another day. Even when read in detail, it is difficult to assess its implications on individual businesses and on the industry overall.
It is a great pity that a simple guide aimed at intermediaries was not issued at the same time so that they could easily assimilate the detail. The new rulebook will have little impact on the industry. On first impression, the lack of compulsion suggests that GISC has taken an approach of appeasement. Every contentious area has been watered down to ensure that all sectors of the industry can become members without any fundamental change to their businesses. The contentious areas of sub- agencies, non-insurance intermediaries, and training and competency are shadows of the rules outlined in the second consultation document.
The rules may be tightened if and when clearances are given by the OFT, but as it stands, the rulebook will have little impact on the structure of the industry. Perhaps this is just. The regulator's function is to protect consumers and to financially control intermediaries – not to change the industry. That is our job. Overall, general insurance is not viewed as a hot-bed of consumer unrest. As such, draconian changes are not necessary.
For brokers, the major advantages of GISC would seem to be:
The disadvantages would appear to be:
A major change is the introduction of a commercial code that is really a good practice guide rather than a compulsory code of conduct. Even commission disclosure is “nice to have.” As such, commercial customers have less protection than they would under the IBRC.
The training and competency requirements have been watered down so much that there are now no professional requirements. It is up to the member to determine what competencies are required for their own staff. GISC will have done little to raise the industry to professional status.
Any member can now assume responsibility for sub-agents, rather than everyone being a member in their own right. The insurers can offer total-tied status or a multi-tie on a product basis. This means financial institutions can be tied if they wish.
Non-insurance intermediaries do not need to segregate clients' money and in some cases do not need professional indemnity cover. It does not seem right that a small motor trader has less controls than Aon.
Membership procedures are not consistent with industry standards.
To become a member, a form needs to be completed giving details of the organisation. This is a data-gathering exercise rather than a deliberate hurdle to obtaining membership. Everyone will be accepted – unless currently being investigated – provided they sign a declaration agreeing to be bound by the rules. This is a major obstacle. In an industry built on utmost good faith and contract law, no one should enter into a contract unless they can comply with the conditions. This is fundamental to our industry and it is surprising that regulators do not recognise it.
GISC is asking prospective members to abide by a code immediately on becoming members. This is impossible; the personal lines code will entail many changes to working practices, and the ecommerce code is brand new and will mean redesigning all websites, and the infrastructure of training and competency needs to be put into place. No company can honestly sign the membership form. It must be wrong for anyone in our industry to pay lip service to such an important issue.
As an aside, one requirement is to handle claims promptly. This may preclude a number of insurers from membership. It will be interesting to see if and when the first insurer is heavily fined for breaking this part of the code.
GISC should issue a checklist for intermediaries so that they can assess their compliance. Only when they can fully comply should they join. One suspects the need for income is overcoming good business practice. Brokers should wait and see.
So what should brokers do? They need to consider that:
Overall, therefore, GISC is still the only solution, but brokers and independent intermediaries will gain nothing by joining immediately. They need to watch developments and change their business practices to comply, in preparation for entry when the position becomes much clearer. The next key date is OFT approval, which will create an opportunity to observe the resultant insurer attitudes to compulsion.
In the meantime, the best action for a broker or intermediary is to wait and see.