Broker regulation - Viewpoint: Securing the future

Regulatory reform is high on the agenda both in the UK and Europe. After years of dissatisfaction, we have a once-in-a-generation opportunity to create a regulatory framework that works for both brokers and our clients. This must be more than a cosmetic name change with the underlying assumption it will be business as usual. It is an opportunity we must not squander.

The government, after an autumn weighing up responses to its initial thoughts on replacing the Financial Services Authority, will deliver its second set of proposals for further consultation early next year prior to publishing a draft bill in the summer. This month, I will go to the European Commission when it clarifies its ideas for the review of the Insurance Mediation Directive at a meeting in Brussels, along with IIB head of technical services Ann Peel.

New framework
These are inextricably linked. In the UK, the proposal is to create a tripartite regulatory structure shared between the Bank of England, the Prudential Regulatory Authority and the Consumer Protection and Markets Authority. HM Treasury remains tight-lipped but we believe it is leaning towards a more transparent and accountable, sector-based framework. We want to see future regulation of the professional broker and intermediary market separated from insurance providers. Such a distinction is implicit in the tripartite structure because the CPMA will be responsible for the financial probity of brokers but not the insurers, which will be supervised by the PRA.

By working together - brokers, the IIB and the British Insurance Brokers' Association - we have a real chance to influence both the big picture and the detail. Increasingly, the IIB and Biba have been speaking with one voice on issues such as commission disclosure and the need to reduce Financial Services Compensation Scheme levies. It is this kind of cooperation that can help avoid the mistakes of the past which resulted in the gold-plating of the IMD in the UK. IMD reform must lead to the removal of the cross-border regulatory disadvantages we now suffer.

The Financial Services Authority's approach to regulation was never designed to include general insurance. Its inclusion, along with mortgage advice, was an afterthought. This has resulted in a costly, unwieldy regime that is devoid of meaningful engagement with professional brokers. This has to change.

Also, the flawed distinction between advised and non-advised sales has proved not to be in the consumer interest because it failed to prevent systemic consumer detriment, none of which can be laid at the door of the broking sector.

Most importantly, the preoccupation with meeting consumer outcomes is inappropriate for our sector. In the general insurance market, what matters most to a policyholder is the point at which they make a claim; it is only then that the quality of advice and the suitability of arrangements made at the point of sale become apparent.

Loopholes
The vast majority of claims are settled with little fuss yet the experience of cases dealt with by Claim Experts - some of which beggar belief - show that consumer detriment often results from action taken by the insurer when a claim is made. For example, claims are often reduced or delayed, or technicalities cited, to decline the entire claim. Brokers will be lucky not to suffer such an experience.

When such problems occur, the broker cannot be expected to have the legal and professional skills needed to defend clients' interests. By stepping in to fight for policyholders against intransigent insurers, we can help reinforce the client-broker relationship by negotiating a better outcome for the policyholder (and we have a special arrangement with the IIB).

Freed from the constraints of politics, my ambition for 2011 is to take all the opportunities that present themselves to secure the future of the professional broker, without whom large parts of the general insurance market, especially small and medium-size enterprises, would not be properly served.