Many FSA regulatory concepts are already in the public domain and are being studied. But what if giving advice falls under the compliance umbrella? Petrina Oxshott suggests a strategy for intermediaries
With Christmas coming and John Tiner having promised lots of holiday reading for the insurance intermediary over the festive period, lets see if we are all as ready as we might be to plan for 2003 and beyond.
The consultation papers that are expected to arrive will herald the beginning of the FSA filling in the detail that the Treasury promised in its consultation last month. But will it fill in enough detail or will it stick with a trend of simply adding scraps of meat to bare bones - and to the general uncertainty?
Intermediary firms still need to get ready and respond to the changes, or face an increasing threat as simple business dynamics put an increased strain on the distribution channels between insurer and client. Levels of advice and the complexity of it will undoubtedly have an impact on the business as well as the competency requirements that firms will be required to maintain. Link this with many insurers being pressured to review their terms of business agreements with their brokers, agents and outsourcing service providers and many firms will be excused for wondering where it will all end.
Regulation isn't expected to be compulsory until 2004, but with all firms having to get ready for, and pass, a vetting-based authorisation process, 2003 is certainly going to be far from dull. Getting you board to buy in and give budget approval sooner, rather than later, will certainly help the process along. Let's explore just a few of aspects that firms should be dealing with now.
For many, the thought of the general insurance industry suffering from a similar fate to that of the life industry, after statutory regulation was first introduced, brings visions of early retirement and mounting overhead costs linked with shrinking numbers of firms in the market place.
This seems to be supported by the numbers of small intermediaries up for sale in the market, which has already increased, and the rationalisation of their business books throughout 2002 has brought increased pressure on brokers' ability to service their clients.
With more of the plan for future regulation becoming clearer, board members may be considered to be negligent if they do nothing to assess the simple impact of the market reaction, that FSA proposals may have on their business. Here are a few examples:
Could a broker become an appointed representative to minimise compliance requirements? If so, would an already regulated firm, such as an insurer, a life and pensions IFA or a general insurance company, be able to easily assume responsibility with minimal compliance costs? Is the network a realistic option?
Since direct insurance companies and IFAs should have an easier route to authorisation (they are already embracing the FSA culture of compliance) and consolidation is inevitable, what risk to your markets do these firms bring? Do you know what your panel insurers, colleagues or competitors are thinking?
If giving general insurance advice becomes a controlled function, all those giving advice would have to be approved persons. Have you considered who actually gives advice within your firm and whether you are ready to meet the standards of control, supervision, monitoring and competence assessment that will be required? And that does not mean just buying into an electronic system.
Focus in on the products that you sell, and assess the levels of advisory service and product complexity.
Do you operate a scatter-gun approach for competency and risk assessment, or are you planning and documenting what you are doing perhaps with specialist assistance?
Are you simply a niche market player and will regulation improve or damage your current market position?
Could you easily increase your participation or service of certain lines of business without impacting on your risk profile?
Equally, challenge when you should be getting out the product line if the increased regulatory cost is likely to mean an unacceptable decrease in margins.
Knowledge of your firm's position, its strategic objectives and its plans for the future are essential if you are to make the most of the opportunities as they arise. To take full advantage of these, your own future distribution strategy should be reviewed and determined in light of the regulatory changes.
In particular, a broker must look closely at distribution channels and consider how business is transacted and whether advice is given.
Supposing one of your distributors refuses to be authorised. Consider how you might be affected. Are you willing to take on appointed representatives if that becomes an option?
The FSA has, in recent months, given increased attention to the need for insurers to manage the risk within their own businesses. Outsourcing activities, such as delegated underwriting or claims handling, are two areas where the relationship between the intermediary and insurer has often been long-standing and where the impact of FSA regulation will now be confused.
Insurers will be pressured by the FSA to review the existence and wording of all the existing terms of business and contractual agreements that exist. Currently, compliance requirements will lie with the insurer to demonstrate but, by 2004, the onus will have switched from the insurer to the intermediary.
In some respects, this is possibly one of the most important CPD articles we have ever published. It deals with a matter that could affect every broker and insurance adviser in the land.
Space prohibits an in depth article, but consider it carefully and recognise that whether you run a business or give advice, the consultation papers that are imminent are about your future, they affect you. Do not ignore them. Read them, speak to others, get advice if necessary and above all, have your say.
Study the consultation and consider how it affects your business.
Write to the FSA with a clear and professional explanation of your views.
Refer the thoughts to trade associations and GISC to establish whether similar firms have similar views
Write to the press in a way that helps the editor to understand the view in some depth.
Do not miss the deadlines set by the FSA
And above all, have your say. It does matter. If that's not a learning point then goodness knows what is.
Using this CPD page
For the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated.
If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded.
For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.
It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body.
Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated.
For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant.
Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.
In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website. We will be preparing a binder for you to keep these in alongside the results of the exercises.
To download a PDF of this article as it appears in the magazine click here .
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