All eyes are on the FSA to help avoid a public relations disaster, says Andy Cook

On Monday, the distribution heads of the major risk carriers went to see the FSA. The hot topic: orphan clients.

Insurers are worried about their policyholders who will be left without a broker because of problems with authorisation.

Brokers have five months before the FSA's cut-off date for applications for authorisation. The regulator has warned that any firms who send in their applications after the mid-July deadline may not be authorised in time for regulation day (15 January 2005).

Of course, most brokers will fill in their forms and get them in on time. Some brokers will start to fill in their forms, find they have issues to deal with and either get their forms in late or just give up. Some brokers will not pass the FSA authorisation.

When this happens, policyholders will be left without a broker that is authorised to trade legally.

The implications for the general insurance industry are of great concern. You can imagine the response of policyholders who are told that their broker will not be trading and that they must find an alternative source of cover.

Inevitably some brokers will be dealing with 1 January renewals, but will be informed by the FSA that they will not be able to trade legally on 15 January. Imagine the prospect of clients being left dangling without cover - the PR could be disastrous.

Insurers are trying to think ahead. Most are looking for their agents to give an indication of their FSA prospects before the July deadline. The insurers are also looking for the FSA to provide some information about the brokers who have applied, so that the insurers can get a feel for which clients might be left dangling. So far, the FSA, as we have come to expect, are listening and are trying to help. Whether they will be able to help enough is another question.

Some brokers are frightened that the orphan clients will be offered renewals by their existing insurers direct and that the long-feared disintermediation of the commercial lines market will be upon us.

But insurers have spent much of 2003 ridding themselves of UK infrastructure, when a batch of new direct policyholders would require more staff.

Small business policyholders might be more attractive as less advice and contact is needed, but again the contact centres' capacity for small businesses is not really there yet. Although, I am reminded that Folgate picked one up in its purchase of Hill House Hammond Business last week!