I was fascinated by the FSA's allegation that "5, 000 brokers have no professional indemnity (PI)and that 24, 000 secondary brokers will need PI ". Can you imagine the cost of PI for, say, the post office which sells a range of policies through staff with, presumably, little knowledge of the product. Is the insurer providing these policies going to pay the premium -or will any broker who arranged the schemes be responsible? What about the vet who sells a few policies on the side? Can he afford the PI costs for a small income resource? Will the FSA organise a full-scale visit to check all records are in place, that CPD and compliance are in force? That terms of business letters are given to all people who inquire about insuring their moggie? That proof of this is held in the vet's records? One concerning aspect is: "Brokers will not be allowed to earn interest on client monies as they sit in their account. "For God's sake who will? The money does not lie physically in an account -the bank loans the money out to make more money and pays the account holder for the use of it. If the broker can't earn anything for the use of the money, then all that happens is that the bank will earn a lot more -the policyholder will not -unless the FSA tells the broker to pay interest on each policy from the moment the premium is received until it is paid to the insurer. I can just imagine it. "Let's see, your £14 travel insurance premium was paid to us on 20 April and we paid the insurer on 1 May. You would have earned 42p interest on your policy in a full year so we are pleased to enclose your cheque for 2p. " The FSA may be great at regulating people, but it has no idea about common sense, or finance.
The FSA proposes a cover requirement of "three times annual income ". Unlike the GISC, however, who set a similar standard ("three times annual net retained brokerage "), CP174 makes no mention that the minimum level need not exceed £10m (or any other figure). One trusts this is an oversight and that, on reading this, the FSA will confirm that. In any event, we question what relevance the size of a business has to the amount of cover required. A small broker could just as easily be responsible for the financial fallout of a catastrophe like the Selby rail crash as a large one could. Indeed, a large broker may be less exposed as he is likely to have more sophisti- cated systems, training and expertise to avoid negligence. Our answer to the level of PI a broker is required to carry is: 1. Cover should be for AOC (any one claim), with no annual limit. This avoids any need to set an annual limit based on the size of the broker. The premium will relate to the broker's turnover, however, so the same limit will be less costly for a small broker than a larger one. 2. Since potential third party claims are unquantifiable, the maximum cover required for AOC should then be assessed by reference to the largest material damage risk held, perhaps with a margin of, say, 20%. Thus a broker who held a property risk of £5m might be required to carry cover for AOC of £6m. Presumably a pragmatic upper limit would be needed, as the GISC accepts. 3. The minimum cover for AOC should be set at a level sufficient to cater for the vast majority of potential third party claims, and we feel brokers who only transact personal lines should be subject to lower requirements than those transacting commercial business, since their potential claims are lower. 4. We suggest £5m AOC would be an appropriate minimum level for a personal lines broker.
Geoff Foster Taylor
Taylor Price &Co
Hypocrisy and duplicity
This week I retire from general insurance after 48 years in the business. I would like to call it a profession, but I can't as there is very little professionalism left. I am not sorry to retire as I have seen many changes in my 48 years, most for the worst. Underwriting has almost disappeared as, unless a client fits the insurers'pigeonhole, it seem to be easier to say no to a risk presentation. I don't blame the computer screen readers employed by insurers to turn down those risks, but I do blame insurers'management for not understanding the market in which we operate. What I do find to be most distasteful is the hypocrisy and duplicity of insurers. Zurich will not allow me, as a provincial broker, to place a risk which is related to the construction industry as I am not, in its words, "a construction broker ". This cockeyed thinking also extends to not being able to place fleet motor business for a construction risk. I explained to the insurers that I have a BA(Hons)degree in insurance management and I am a Fellow of the CII and thus I think I have a reasonable idea of the type of cover required by a builder. I also have a reasonable amount of experience in the insurance industry. This, however, is not good enough for the mighty Zurich. The other day I walked into the local builders'merchant. While I was waiting I thumbed through Professional Builder magazine. Imagine my surprise when I saw an advertisement for builders to directly ring Eagle Star (owned by Zurich)to apply for employers' liability, public liability and contractors all risks cover. Isn't it strange when a trained broker can't be trusted to understand the insurance requirements of a builder, but the builder who probably knows little about insurance can deal direct with Zurich. This is why the words hypocrisy and duplicity spring to mind. Perhaps brokers should ring Eagle Star, pretend to be a builder, get the quotation and then add a fee. The other option is for brokers to stop supporting Zurich until they create a level playing field. I am glad I am retiring.
Chartered insurance broker
The letter from Mr Loochin (20 March, Insurance Times )seems to miss the point. No one is asking his organisation, as an intermediary, to disclose what it spends its income on, only to disclose to its client how much it is charging. This also has the effect of clarifying how much the underwriter is receiving, which I am sure Mr Loochin believes should be transparent. Lloyd's and other insurers disclose their income, so should Mr Loochin's firm.
Insurer 'chain gangs'
John Jackson's point regarding "The growing tendency towards a chain of brokers being involved between client and insurer. " (20 March, Insurance Times )is well made as usual. The consolidation of UK insurers, allied to restrictions in capacity and innumerable agency and product rationalisation programmes from the composites has meant that the choice of markets available to brokers large and small is increasingly limited. Some may believe that there is nothing wrong in brokers using brokers to place risks that do not readily fit the "norm "of their own agency base. However, in my experience, it's the underwriters as well as the client that suffer from this method of trading. The "chain gang "of which Jackson speaks, which results in extra mouths to feed, inevitably means the client pays more than necessary, as fees inflate the core insurance cost. In addition, underwriters are often starved (unwittingly or not)of accurate risk information and end up dealing with a broker that lacks any personal knowledge of an insured client. This generally results in a significantly poorer loss ratio. The further one gets from the original broker, the risk information and the account performance generally declines. While there are some well established and professional wholesale brokers and some that just help their friends out on a facultative basis, this multiple sub-broking trend is not good for our industry. In providing brokers access to much needed commercial insurance capacity, we aim to deal with the holding broker, providing them with a market for a broad range of commercial risks including those that don't fit the so called underwriting "strategy "of many of the traditional composite markets. Perhaps brokers should look to new markets rather than deal with the dinosaurs or place business with their competitors.
Primary Broker Services
Insurance by Balls?
Alastair Ross Goobey's comment regarding Lloyd's would now be Starbucks might be true, but as the culture of the London Market has now moved towards wine bars, it could just as easily be Balls. I'm insured by the Balls market?