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Brokers speak out on regulatory burden

MP reopens debate over the effect of increasing regulation on small brokers

The burden of regulation could push smaller brokers out of the insurance market, industry experts have warned.

The universally held view is that the broker market is shrinking. The discussion was brought back into focus by Craig Tracey, Conservative MP for North Warwickshire, in a recent debate about regulation and the Financial Conduct Authority in the House of Commons.

Following Tracey’s comments about regulation being disproportionate (see below), specialists in the broking sector have agreed that compliance, in regards to time and resources, can be a difficulty.

Problem for Brokers
Gavin Whippy, broker at family- owned John Whippy Insurance Brokers, said: “It’s much more work for me in a smaller brokerage doing as much compliance as a firm that has got 30-40 staff or more.”

Andrew Tunks, director at Hampshire-based Miller & Co Insurance Brokers stated: “Regulation is a problem for us, it gets more and more difficult.” He added: “We have to spend more on resources ensuring that we remain compliant, which is not an easy thing to do but it’s a must.”

The cost of regulation in the UK is higher than in the rest of Europe, but Paul Dickson, chief executive officer of Innovation Broking, stated that he did not consider it to be a barrier for entry to the broker market.

Adding that a large part of compliance would be “deemed as good practice”, he noted: “Smaller brokers need good quality external compliance advice and there are a number of really good consultants who aren’t exorbitantly expensive but can steer the smaller brokers through the compliance requirements.”

However, he expressed concern that the demands on smaller brokers would increase. “There’s always talk of making life more difficult for brokers,” Dickson commented. “Clearly we need to lobby hard with MPs and people like the British Insurance Brokers’ Association to make sure that is held at bay or that any changes are reasonable and proportionate.”

In addition, industry sources named several other issues that are putting pressure on smaller brokers, such as competition from online comparison sites and consolidation.

“The bigger threat would be the leverage that the larger consolidators and the larger commercial lines brokers have in the marketplace with higher rates of commission and closed schemes.” Dickson added.

Less choice
A possible outcome if the broker market continues to shrink is that consumers will have less choice. “Insurance tends to be sold rather than purchased and people often don’t realise what’s available in the market or what they need,” Whippy said.

“If you’re relying on them just to go online and search around they’re not necessarily going to get the right cover or all the cover they could possibly have.”

According to Dickson, another problem would be that smaller businesses would have a tougher time finding insurance if there were no small brokers to advise them. “A lot of the consolidators have internal programmes that are all about minimising the levels of service that they’re prepared to give SMEs,” he noted. “It becomes a pretty tricky situation if you don’t have independent brokers around to fill the gaps.”

But not all of the brokers Insurance Age spoke to agreed that a reduced broker sector would be bad. Tunks argued that independent brokers could provide higher levels of service to their customers than the large national firms and noted that because of this a market with fewer brokers could benefit his business. “There’s less competition in our local market with similar brokers so that gives us an edge in terms of what we can offer,” he concluded.

Market reaction
According to Graeme Trudgill, executive director at the British Insurance Brokers’ Association (BIBA), the disproportionate regulation for insurance brokers is at the top of the trade body’s agenda.

Biba’s position is that the problem is not just the actual regulation, but that the regulator makes a lot of calls for information, thematic reviews and market studies.

“What we want is more proportionate and cost-effective regulation for insurance brokers,” Trudgill noted.

“We are low risk and we don’t have significant cause for concern with the regulator and so it’s something that we believe would be the right thing to do. They need a more proportionate approach and not the most expensive on the planet.”

Debating regulation
Craig Tracey, Conservative MP for North Warwickshire, took part in a debate about regulation and the Financial Conduct Authority (FCA) in Parliament on 1 February and stated that he did not think that the regulator fully understood the industry.

He told Insurance Age afterwards: “It’s not that we don’t want regulation at all, but it has got to be proportional to the threat that we pose.” Adding: “I think the overriding message of the debate was that the FCA isn’t doing its job.”

By Ida Axling in Insurance Age