Fighting talk

Straight off the bat, Andrew Paddick says: "The problem with a lot of brokers is they don't delegate; they are entrepreneurs taking a chance and many behave as if there is no one else in the office."

In familiarly emphatic tones, he dives straight into his view about the succession problems facing a market, which - rightly or otherwise - he has played a hand in shaping.

He continues: "When I grew up in a small village in Hertfordshire in the 1950s, out of 80 to 100 households, ours was one of only three that had a car. Provincial broking really took off in the 1960s and 1970s, with the increase in number of people driving cars. Inspectors on the sales side in their 30s and 40s knew what customers wanted and set themselves up as brokers. Many of these are now nearing or at retirement age."

So, how sustainable is the membership of the Institute of Insurance Brokers on that basis? "We tend to get two to three new members a year, which makes up for what I call 'natural wastage' as members sell up or merge with each other," he says.

A brokers' champion

Whether brokers like it or not, Paddick is a self-styled, self-made brokers' champion. And, while many may complain about the current regulatory arrangements under the Financial Services Authority, he is one man who is likely to engage the regulator in some high-profile, high-level challenges.

While his reputation as one who is not reluctant to cross swords with government departments may lead many to regard Paddick as one of those industry figures that is always on the lookout for the next big scrap, he insists the opposite is true. "Big battles are not pleasant - they are all-consuming and there is only so long my team and me can burn the midnight oil before it starts to make us ill." he states.

However, his impassioned commitment to the the pursuit of what he regards as critical issues leads him to criticise other associations for stopping short of a stated objective. "The IIB is different to the British Insurance Brokers' Association in that, while historically it will make every effort to exhaust diplomacy, it will walk away after every reasonable attempt has been made to secure its stated objective for its members. But, I believe dynamic representation is what members pay subscriptions for - for their trade body to battle on beyond this."

As a founder BIBA member, Paddick began drifting from the party faithful after he found its lobbying efforts in the early 1980s - against an act of parliament that threatened to push brokers into the Financial Intermediaries, Managers and Brokers Regulatory Association - unsatisfactory. After Paddick raised his concern that BIBA's lobbying efforts may not be sufficient, a throwaway comment by a BIBA member, basically saying: "You try if you think you can do better", led to Paddick's first political tangle. He claims that examples such as this and, more recently, against the General Insurance Standards Council mark him out not as one who goes looking for conflict but one who will not shrink from challenges as and when they occur.

So, are there any issues about which he intends to roll up his sleeves and get stuck into in 2005? "As I say, battles are certainly not pleasant and some associations stay away from them; I hope we don't have to undergo any more ever - they are bad news," he exclaims.

That said, he is, in the next sentence, ready to ignite over a bugbear - namely the FSA's accountability, which has been smouldering for some time now. "The FSA can bring out a rule and members and representatives cannot oppose it; the regulator should be more answerable and the system more democratic. I am not afraid to go up against government departments and I think the sector has improved as a result of our challenges, with things such as the Recognised Professional Bodies Act, which saved brokers millions of pounds. I passionately believe in democracy and no board should have the power the FSA has."

Regarding the Financial Services Compensation Scheme he adds: "If the FSCS is unable to pay awards it will put the levy up - there is no cap in real terms as the board can just decide to put up the annual contributions to claw it back the following year."

He continues: "The recommended professional indemnity cover level has been set at EUR1m (£700,000). If broker 'A' buys this coverage but broker 'B' has PI cover for £10m, broker A can buy a new Bentley. But, if he finds himself going through his PI, his business is probably going to be in serious trouble. However, he could feasibly buy the business back from the liquidator but that is (via the FSCS) at the expense of the prudent broker - the setup is just not equitable. And there is nowhere in the world where you will find an unlimited compensation scheme. The FSA has arrived at this arrangement by looking at the Policyholders Protection Act - but this applies to insurance companies and is totally different for brokers."

Despite his stated dislike of high-profile confrontations, Paddick is winding up to pursue a legislation amendment precisely for a more equitable FSCS arrangement. Concerning his objection to the current PI levels specifically, he says: "There is a problem at the moment as Callum McCarthy (FSA chairman) has refused to reconsider. But, I think we will make progress as I have spoken to the Treasury and politicians and there is sympathy on both sides of the political fence."

Possible judicial review

It is clear that, at the time of writing, he is biding his time until the outcome of the general election is certain. When asked how far he would go to pursue the regulatory changes mentioned, he says he would not rule out a judicial review and would possibly even take this up at a European parliamentary level, all of which would cost a lot of money for which he may call on brokers for a fighting fund.

"It has always been a close shave in the past, raising funds to fight the brokers' corner at this level. We make a call to brokers to support a fund to fight issues for the overall good of the market, but often we will make a second or third call," he states.

The fact that brokers have supported his campaigns in the past, Paddick says, vindicates his efforts and proves he is not merely grandstanding but making a genuine response to threats to brokers. "Brokers need robust representation and what the IIB has saved the industry in financial terms over the years is colossal. But, it is up to brokers if they want to support this action and they certainly do not put up their own money if they do not see a real threat."

While he reiterates his hope that action against the FSA will not go ahead - "I hate it, it wears me out," - it is clear he is not yet ready to throw in the towel.

"I built this raft called the IIB years ago and I haven't landed yet. But there is a lot to sort out with the FSA; it is procedural and bureaucratic and it is not saying who the bad brokers are - it has let everyone in. And consumers do not want reams of paper that they will not read and won't understand if they do."

With regard to other issues he means to 'sort out' with the regulator, he cites 'Mickey Mouse' insurance companies operating offshore. But there is a fundamental mismatch between the regulatory regime as it stands and Paddick's own vision of a regulatory ideal - namely, regulation of members by their peers.

"With the Insurance Brokers Registration Council, most of the good brokers chose to be regulated by their peer group - where members guarantee the rest of the regulated community." Despite this, Paddick's appetite and sense of obligation to continue challenging unsatisfactory issues is undiminished and will push for amendments to the existing framework. Indeed, his saying that "it will take time to improve regulation for brokers and consumers" further hints that he will be around for some time yet.

With regard his concern about offshore companies, he adds: "We now have such a thing as passporting, so insurers from the old Eastern Bloc are now coming in and seriously affecting some classes of business. The FSA does not stop new players like this, so, despite the large market-share-controlling composites saying they are managing the cycle better, there could still be sharp peaks and troughs to come in future market cycles.

"The FSA has a risk-based approach to solvency, as opposed to the old solvency ratio approach. This is logical, but not all firms are regulated on this basis globally, which could disadvantage UK brokers. With the freedom of services, consumers cannot be fully protected by the FSA as the Insurance Mediation Directive is not operational in the entire EU. Gibraltar has been used and I am concerned that one or two firms in particular will, five or 10 years down the road, go bust."

Regarding other methods of distribution that threaten brokers, Paddick observes: "There has been a lot of energy going into the motor market for some time now with the services of those such as Direct Line shaking things up. Some providers have tried to replicate this but Direct Line is now in a very strong position and no longer has to be the cheapest as it is established and has built up a reputation.

"But, I do not think all classes of business will be as hard hit in the same way motor has been. It is very difficult to replicate this approach with household, for example, as for all risk items this is a more complex procedure requiring more administration and, therefore, more staff, making it uneconomic. And I do not see the whole SME direct effort as being particularly worrying; I think they will get all the bad risks."

Paddick is confident that future efforts to bypass brokers and supply products electronically are highly unlikely to do away with them all together.

"To put the expertise and specialist knowledge of brokers, who know hundreds of policies, on the internet is OK for single classes of business, but no computer will ever be able to replicate this for complex multiple risks."

However, he is concerned about the future of Lloyd's. When asked if he considered whether the individual specialist syndicates could compete with the growing package offerings by the composites, he says: "The contraction in the number of syndicates has already been enormous and this could lead to further consolidation or syndicates leaving Lloyd's. While I do not want to tell (chief operating officer) Nick Prettejohn how to do his job, the trouble is the law of diminishing returns - by that I mean, as syndicates leave Lloyd's, the cost for remaining syndicates increases, putting pressure on their margins."

While not everyone agrees with Paddick's outspoken views, his profile certainly bucks the popular public misconception that insurance is a grey, faceless, corporate enterprise. As such, while he is intent on setting the regulator straight on the points mentioned, he is also keen to address the issue of attracting fresh blood into the industry.

"Not many people have an ambition to be in insurance and many arrive in the industry by default. But, there are some wonderful career opportunities and I want to see more people coming in with a view to going into management.

On the broking side, succession by family members is not what it used to be - when I joined there was a lot. I know a broker who has a £20m business, yet his sons and daughters are not interested in becoming involved.

Young people have a lot more choice these days and insurance has to be in there and sell itself to compete for the talent."

CV

1987: formed the Institute of Insurance Brokers

late 1960s-1980s: commenced career as motor insurance underwriting clerk and, over the following two decades, gained wide market experience as a Lloyd's reinsurance broker, general branch company inspector and commercial insurance broking manager.