In last two years before the credit crunch, the British government imposed far-reaching financial and structural controls over the UK Insurance Market by bringing the sale of General Insurance into the controlling hands of the Financial Services Authority, the FSA legal regulation and authorization for the first time of the sale of UK personal lines and commercial risks.
Anyone large or small who wishes to market and sell the majority of insurance products in the UK must be authorized and regulated by this very large Quango.
Prior to this the UK Insurance industry was self-regulated through professional bodies.
Five years on, what has this meant to the way we buy Insurance as consumers in the UK?
The regulation has certainly had a large impact on the available distribution channels, with a contracting market and barriers to entry.
Although regulation came into force during a period of Insurance broker consolidation and aggregation coupled with skewed figures due to new entrants from the Internet, it appears that our old friend the high street broker is the one to have suffered the most.
The problem with metropolis style regulation is that there is no point in having it unless you have enforcement.
The UK Insurance Industry likes to use nice word compliance as a synonym for the cost.
This has bred a whole new industry in itself, outside of the additional thousands of pen-pushing bureaucrats in the FSA.
Compliance, generating a whole new industry and wealth base….the compliance officer or consultant.
The problem is … it hasn’t generated any wealth has it?
Where’s the money for all this compliance come from?
Out of the pockets of the Insurance companies involved!
And where do you think that money is going to be retrieved from?
Quite Right! Higher Insurance Premiums for me and you!
So what we initially thought might be a boring insurance story has turned out to be very intriguing.
What’s happening in the world of compliance and Insurance Brokers?
We thought we’d catch up………..
Regulation and Compliance: FSA Fees a “burden on smaller firms” Says Institute of Insurance Brokers’ Bradshaw
I imagine that there is no small amount of insurance brokers out there at the moment wondering what on earth they have done to upset the financial authorities so much.
First, we see her majesties wonderfully efficient revenue and customs chaps getting it completely wrong with Insurance Premium Tax and piling unnecessary and unwarranted taxation on the broking sector. Probably too busy trying to doubling erroneous tax bills to pay too much attention to what the role of the humble broker is.
But like the pantomime baddy that tries to steal every scene in the show in wade the FSA to show these clowns in the HMRC that when it comes to completely missing the point and costing brokers a lot of time, money and emotions – they have the market cornered by proposing a minimum regulatory fee of £1,000.
As they have done so many times before they really seem to have tried so hard to do the right thing but somehow just managed to get it so wrong. The move to review the fees and levies structure is the correct thing to do, but it needs to be done in a considered and intelligent manner.
When will the FSA understand that sometimes a one size fits all approach to all things financial just doesn’t work. Sometimes that square peg just won’t fit into that round hole – no matter how hard you smash it with that sled hammer.
Well, they’re in trouble now because Barbara Bradshaw, chief exec of the IIB and defender of the humble broker has the FSA in her sights. For the record I think that Barbara is a wonderful and very likable lady, that said I wouldn’t like to get on the wrong side of her either, she is also a very powerful and determined lady who strikes me as being able to achieve anything she puts her mind to.
Referring to the proposed minimum fee as ‘totally disproportionate’ Bradshaw went on to comment that the fees were likely to become a major ‘burden for the smaller firms’
She added “While we welcomed the FSA’s commitment to review the fees and levies structure, we’re nevertheless concerned that the proposals really do penalize the smaller broker. The FSA’s proposed fee structure means many smaller brokers could face up to a 200% increase.”
Showing a complete lack of understanding for the complexities of the broking community as well as fundamental disregard for the smaller brokerages the FSA have claimed in their consultation document ‘Regulatory fees and levies: policy proposals for that “These proposals simplify and significantly increase transparency as it is clear what the minimum fee covers and why”
The document goes on to later state that the new system will “be fairer as the basis for calculating it will be the same for all firms.” Again they are so close to getting it right, aren’t they? Again the theory behind it sounds like it is ticking all the right boxes but the delivery is just far too heavy-handed.
The biggest worry is if we get rid of this incompetent lot, who are on earth, are we going to get to replace them? Part of me would say that it’s better the devil you know. Perhaps if they just started listening to people like Barbara, Eric Galbraith or even god forbids a few insurance brokers, they may actually be able to make the leap from having good ideas to actually doing some good? But can we afford to give them the time to learn from their mistakes when their mistakes are costing us so dearly?