A trail of red tape

The plethora of directives, updates and consultation emanating from Brussels means companies are likely to need more advice - and, in many cases, more insurance as protection. This in turn means that optimistic brokers should be seeing regulation as an opportunity.

But it seems that many brokers are gloomy about the effects of so much regulation. As business people themselves, they are often employers, typically without a human resources professional, and, like everyone else, subject to the minefield of employment law.

Indeed, a recent survey from the British Chamber of Commerce showed that the UK government alone has introduced nearly 900 business regulations since 1997 - many of them stemming from Brussels - costing UK firms a massive £30bn.

The EU has recently brought in laws relating to disability, sex and race discrimination. As recent official figures show, the number of employment tribunals in the UK is rising. And, as insurance advisers, brokers now face additional pressures that go way beyond struggling to find liability cover for higher-risk clients; they now need to be aware of myriad regulations concerning corporate governance, asbestos and other health and safety issues.

For example, as a result of the impact of the recently imposed Working at Heights Directive, any brokers with window-cleaner clients are likely to be tearing their hair out as a result of more stringent rules. Then there are new EU rules linked to pollution and waste disposal, which could affect many insurers; or, for those brokers dealing with transport clients, there are new laws linked to the hours that can be spent driving.

Moreover, as brokers receive their minded-to-authorise letters, they will be reminded that regulation by the Financial Services Authority has come about as a result of a decision taken in Brussels - namely, the Insurance Mediation Directive.

Regulation remains a moving target - the crucial issue of risk transfer and commingling of client money is still being decided, although the British Insurance Brokers' Association has campaigned hard to ensure brokers receive as fair a deal as possible.

No time for complaining

But there is no time to waste in lamenting the collective regulatory influx. The regulated environment has well and truly arrived - and the advantages it brings must not be overlooked. Increased professionalism, with incompetent advisers driven out of business, and better protection for clients reside at the heart of much of the reform. Brokers will be less able to plead ignorance if they mis-sell, mis-advise or commit other misdemeanours. They must ensure they are well-informed and that they have a sound working knowledge of new legislation - or face being fined, named and shamed, or, at worst, struck off by the FSA.

Certainly there has been an increase in the number of consultants and insurance lawyers working with brokers to advise them on regulatory matters.

Kenneth Underhill, a partner with Reynolds Porter Chamberlain, is an expert in advising intermediaries on regulation and says: "It is tough for brokers right now and they have been very focused on the FSA, but they do need to have awareness of other issues arriving from the EU. I think some of the trade magazines do an excellent job in helping brokers stay informed, and it is probably well worth considering joining a trade body."

He adds that more brokers are looking to work with specialist lawyers in a consultancy capacity rather than just contacting them in the event of possible litigation. "Compliance work needs to be ongoing. There is a risk that some brokers may think they are fully compliant but, by this time next year, may find they are not. Brokers should also make sure they understand the changes to the ombudsman system, for example, and how it will affect them."

As any broker who has visited the FSA's website will know, trying to find the answers to a regulatory query can be frustrating. The site tends to spew out hundreds of related documents, but finding the exact information required can be elusive.

Andrew Paddick, director general of the Institute of Insurance Brokers, says: "Brokers need the relevant information that pertains to their business disseminated, and this is what we do. It is virtually impossible for brokers to keep up with the Eurocrats and bureaucrats without this sort of help."

He adds that a further vital role for trade bodies is to campaign for change on their members' behalf. "If necessary, we will declare war - and at present we are battling with the FSA on the proposed compensation scheme, which could be unlimited and so cost brokers millions."

Both BIBA and the IIB produce regular updates for their members and offer training seminars. BIBA has launched its brokerAssess system, which provides training and competency core skills to staff at all levels. And the IIB too has launched an online competency system. Paddick adds: "Brokers are not HR professionals and they need support - whether it is a full compliance service, through which we can offer guidance, or assistance with employment contracts. We have just produced a new service because, if brokers are not watertight in this area, they could end up in a tribunal without a leg to stand on."

BIBA's technical manager, Graeme Trudgill, comments: "It's not just about keeping our members informed through our website and publications, but also lobbying on their behalf."

He points out that BIBA provides high-level representation through its chairman, Max Taylor, who also chairs the UK arm of The European Federation of Insurance Intermediaries, the Europe-wide broking association. In addition, David Hough, chairman of the London Market Insurance Brokers' Committee and a BIBA executive director, takes a special interest in European affairs.

"We lobbied strongly against the gender directive, along with The Association Of British Insurers. It made no sense to stop offering lower premiums to women drivers when it is clear they have a lower risk profile. This is now being redrafted and we will continue trying to check problem areas as they occur. The Fifth Motor Insurance Directive is on the horizon, which could mean significant changes to liability - particularly with regard to compensation for victims where vehicles have false or no registration plates, pedestrians and cyclists," says Trudgill.

Unequal terms

The Insurance Mediation Directive is meant to bring about a regulatory level playing field, but more than a few experts believe that brokers in the UK are facing more challenges than some of their European colleagues.

Underhill, while unwilling to say which countries have lower standards, admits that regulatory standards - and the financial services industry as a whole in the UK - is particularly strong.

Paddick considers the UK's approach to broker regulation is particularly prescriptive. "Take the issue of passporting, which means brokers can trade in Europe. In the UK, this is likely to be onerous. In some other states, brokers may get away with a single form. Here, we have an FSA Handbook, which, when printed out, is almost six feet high. In other countries, there has been little attention paid to the Insurance Mediation Directive, with minimal rule changes applied - if any."

Those who are already used to the rigours of the FSA say that the pressure of European law makes working as a financial adviser hugely difficult.

Brian Lentz is already regulated as an independent financial adviser and specialises in protection insurance. As someone running a small business - Portfolio Insurance Consultancy, based in Hatfield - he argues that it is impossible to keep up with EU legislation and changes: "I would like to see the FSA provide proper information for brokers on relevant issues affecting their businesses. But all we get is a constant stream of consultation papers - and finding out what the final decision is on a matter, and interpreting this clearly, is incredibly hard."

He also says the level playing field that the Insurance Mediation Directive was supposed to create is farcical. "You cannot compare like with like. The UK insurance industry pays more in benefits and claims than social services. We have one of the most advanced financial services industries in the world - and one where it is incredibly easy for 'ambulance chasers' to complain and be awarded compensation."

Lentz adds that he too relies on the trade press for updates on regulation, but says even this can be difficult to manage when he needs to devote most of his time to dealing with clients.

The changing business environment prompted David Newton to sell his brokerage, Bervale Mead, to Folgate Risk Solutions based in Milton Keynes. He is now on the board of the company as development director. "When you speak to someone running a small broking business, you hear them say it is impossible to keep up. They are weighed down with bureaucracy and profitability is affected," he comments.

He says that, as part of Folgate, it is easier to be well-informed because there are sufficient resources for compliance to be centralised and the relevant material precised and filtered through to each branch. "Brokers want to spend time with clients, and regulation means that even a straightforward renewal can take twice as long as it did because of the need to be compliant. My role also involves acquisitions - and you can't devote yourself to that if you are swamped with consultation papers."

Insurance for brokers

In terms of increased business, there is no doubt that many see brokers - and their clients - needing adequate professional indemnity and legal expenses insurance. Sheena Lindegaard, who heads the Lawphone service at Allianz Cornhill Legal Protection, says that, to date, many brokers have tended to rely on the relationships they already have with insurers and lawyers to provide guidance. But simply calling in a favour will not be enough when faced with a barrage of legislative change: "It can be particularly difficult with commercial clients to offer best advice when there have been so many changes. Managers are becoming increasingly liable and brokers need to impart the right information. The Control of Asbestos Regulations, for example, are likely to mean more personal responsibility needs to be taken for those managing staff removing asbestos. It is a massive issue, since the material was still used in construction for buildings right up to 1999. The whole area of record-keeping in this area is also essential."

Lindegaard says now is a good time for brokers to review their own insurance protection, and access to a helpline such as Lawphone can be invaluable.

She adds that, apart from the press and the FSA, it can also be useful for brokers to use websites such as healthandsafetyzone.com for updates on the latest legislation and rule changes.

"Painters, scaffolders and roofers are just some of the workers for whom many brokers are required to find insurance and dealing with their needs can become time-consuming. But growing complexity in the commercial insurance market in general means advisers must know exactly where their clients stand," she says, adding that brokers involved in wholesaling should also analyse carefully what the position is in relation to secondary intermediaries.

Scheme providers need to know who is selling on their behalf and if FSA authorisation is needed.

David Haynes, underwriting product development manager for DAS, points out that his company launched a regulatory and employment protection product specifically for brokers at this year's BIBA conference: "Part of this includes access to the DAS Business Law website, which provides regular updates on EU legal matters. We are also seeing more interest in our employment practices policy, which is also relevant for brokers."

He emphasises that brokers can not avoid the issues. "Even if you aren't sent a self-assessment form, you are still liable for your income tax - and it is no different for brokers. I don't think the FSA is going to be a soft touch - and if the experience of the life side of the industry is anything to go by, we can expect to see some brokers hauled before the FSA for investigation."

No one is saying a broker's lot is easy right now. Certainly, as regulatory requirements grow, so too do the facilities and resources available to help interpret and implement legislation. But, for brokers at least, there are no signs of the working day getting any shorter - no matter how many edicts on that subject come out of Brussels.