Brokers have not had an endemic problem nor had any serious client complaints, but to satisfy the the regulator let's get it right, says Chris Blackham
'As the first year of general insurance regulation draws to a close our final regulatory environment remains uncertain with the full consequences of issues such as Treating Customers Fairly and Conflicts of Interest being far from clear.
I am a great believer that the right regulation will enhance the professionalism of our industry and have consequently pushed Layton Blackham to lead rather than to follow compliant standards.
My fear however has been that regulation could become too prescriptive and rather than being 'appropriate' would become all consuming and strangle the insurance broking market place.
I believe that we are now on the precipice of this becoming a reality if brokers do not themselves now put the checks and controls into their businesses that will prevent further unwarranted and damaging intrusion into our fundamentally honest, client focused sector of the financial services industry.
There never has been an endemic problem with the insurance broking community and there is no substantive history of client complaints or consumer detriment.
There is little or no evidence of insurance brokers profiteering at the expense of the consumer, rather the reverse.
An applaudable weakness of insurance brokers is that they have a tendency to over service their clients. They have historically been the consumers' champion, often going to extraordinary lengths to protect their clients interests, usually at the expense of their own profits.
It is, therefore, essential that in responding to the FSA's theme of Treating Clients Fairly brokers do not just feel affronted, as they feel this is already an integral part of them and their businesses.
But that they should evidence this by putting in place clear policies and robust systems that mitigate these risks.
Failure by us to do this will result in more prescriptive and inappropriate legislation which could be the death knell for the very intermediaries and drive consumers into the hands of the direct insurers, who do not provide impartial advice and who will always now be in conflict on claims payments.
It is, therefore, to insurers that the FSA should now be turning to ensure customers are "treated fairly" in particular, demanding fairness in contract terms and claims payments.
That the FSA is even considering reducing or removing disclosure requirements from direct insurers flies completely in the face of their own "treating customers fairly" theme. Surely a consumer dealing with a direct insurer should be made aware at the outset of the conversation the that the insurer:
While on the subject of insurers and treating customers fairly when will the government realises that the vast majority of all general insurance consumer claims relate to extended warranty insurance, creditor and travel insurance sold by insurers via companies who are not insurance professionals.
The structure and flagrant profiteering in these markets is a disgrace, but because the profiteers are household names a blind eye is turned.
My initial response to the FSA's recent letter to chief executives on 'conflicts of interest' would have mirrored Victor Meldrew - I couldn't believe it.
I felt that the majority of the issues raised were being handled responsibly by intermediaries, but for some reason as an industry we have failed to satisfactorily explain the benefits of facilities such as claims handling authorities, premium finance, binding authorities and line slips that have worked for years for the good of our clients.
I felt that the FSA was chasing shadows perceiving risk where there was little.
On reflection, however, I hope the FSA appreciates much of the nature of our market and has chosen to deal with the outstanding concerns by challenging us one last time to close off any areas of conflict to maintain lighter touch regulation.
The letter, in fact, is cleverly constructed and kills two birds with one stone - dealing with another contentious issue by waving a stick at the broking industry by threatening upfront disclosure of commission to commercial clients, particularly if the FSA is not satisfied with the response to the conflict of interest letter.
This, I suspect, has been stirred up by Lloyd's and international brokers caught up in Spitzer whose chief executives knee-jerked to full disclosure to protect their core fee based business while failing to see the damage this would cause to their SME accounts.
As they are now suffering the consequences they wish to level the playing field regardless of what is right for the market and the consumer.
The government's involvement in product pricing and disclosure in the IFA market has proved detrimental to the very consumers they have been trying to protect as Intermediaries now simply cannot afford to provide the man in the street with proper financial advice.
Net pricing and fees are right for the large corporate buyer, but for everyone else commission is a desirable and sustainable model and I am optimistic that the FSA now appreciates this and has little desire to change its policies for both commercial and retail clients if brokers now put their houses in order.
The majority of the issues raised in the 'Dear CEO' letter usually work massively to the consumer's benefit, or in the case of soft loans and close links have not been to their detriment.
And many of the concerns raised are hopefully just shadows in the night which should not be allowed to call into question the operating structure of the world's leading insurance market.
I have challenged Biba to propose to the FSA that they meet with small groups of Biba members with particular strengths in the highlighted areas to enable open discussions to elicit exactly where the FSA's concerns lie so that these can be balanced against the benefits and best practice can be developed and shared to mitigate the risks.
The ball is in our court, let's seize it. IT