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:

  • It brings about a level playing-field for all full-time insurance intermediaries.
  • The 35% rule is abolished. This is unsustainable with current insurer consolidation.
  • Tieing on the life side will not affect general insurance status.
  • Individual registration is no longer required for directors.
  • Solvency margins are relaxed except for those accounting on a received basis.
  • Everyone (except non-insurance intermediaries) must segregate clients' money.
  • Assets now include goodwill and property.
  • There is no enforceable code for commercial insurance transactions.
  • There is a reduction in the original proposed costs for small players.
  • The fee structure now takes into account payments to sub-agencies.
  • There are defined rules for personal lines ebusiness.
  • Members can now take responsibility for appointed sub-agents.

    The disadvantages would appear to be:

  • After the repeal of the IBA, anyone can call themselves an insurance broker.
  • There are lower financial standards for non- insurance professionals.
  • There are lower standards for professional qualifications.
  • Annual competency assessments for all employees and maintenance of training logs have been introduced.
  • There is proactive monitoring by third parties.
  • The compulsory membership of a disputes resolution system has been introduced.
  • There are extra costs for many because of fees, the disputes resolution system and professional indemnity increases.
  • There are more controls on Aon than on a small motor trader.

    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

    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.

    The considerations

    So what should brokers do? They need to consider that:

  • They will have to be members of IBRC until it is abolished in April 2001. There seems little point in voluntarily joining another body.
  • Most independent intermediaries are still subject to ABI monitoring. Therefore if they join GISC, they will be subject to two codes. There seems little point in this.
  • No one knows if and when the OFT will clear the report making it compulsory.
  • There is still a lack of details on the disputes resolution side.
  • Interpretation of the rulebook will evolve and needs to be understood.
  • It will take all intermediaries some time to change their business to comply with the personal lines code.
  • Andrew Paddick's initiative might succeed. But since everyone can call themselves a broker, there seems little advantage in a separate body.
  • The Financial Services and Markets Bill seems to be in a mess, making the prospect of legislation, as a stick, a long way off.

    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.

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