Eric Galbraith: It's time to unite and fight

The interim budget of the Financial Services Compensation Scheme (FSCS) has just been announced. The impact of what will be another 50% increase on last year’s already substantial increase will be critical to the survival of some brokers. In order to survive, brokers may have to pass on the cost of the FSCS levy to their customers.

Biba has also called on the FSCS to ensure it pursues recoveries against the relevant insurer where it can be proven that the credit broker was acting as the insurer’s agent.

In the meantime, we are pushing to make sure that the review of the unfair FSCS funding model is not delayed and the completion date of April 2012 is not missed. I also urge brokers to adjust their budgets in order to prepare for the bills that will follow the anticipated increase in the FSCS levies.

Regarding the review of the FSCS, brokers need to be separated from those whose main business is not risk management and insurance protection. Within the Consumer Protection and Markets Authority (CPMA), when it is established, there needs to be a greater understanding of the professional insurance broker and what should be appropriate, proportionate and cost-effective regulation. Regulating the professional insurance broker or intermediary in the same way as other insurance providers is fundamentally flawed. Government ministers and policy writers should look at where problems have arisen in the past.

In my opinion, too many different types of organisations can far too easily get involved in the sale of general insurance. Currently regulators put all of them into one silo. This is not good regulation, and it must form part of the FSCS review. It must also be reflected in the structure of the CPMA when it is established. The FSCS and CPMA are Biba’s two regulatory priorities for 2011.

One of the crucial aspects of the FSA’s current style of regulation relates to client money. If complete consumer protection can be achieved between brokers and insurers on the issue of client money, then frankly the CPMA’s style of regulation must reflect this. It will substantially reduce the overall risk and therefore the need for costly regulation, particularly for the professional intermediary.

I would like to see insurers working with Biba to agree a robust resolution to the issue of client money. Most insurers already provide risk transfer. With Solvency II, there will be a need to formulate a response to deal with client money. Why not agree something between ourselves and present a legally watertight solution? If we don’t, the current position will give regulators an excuse to continue to pursue this issue vigorously and intrusively.

The FSCS and the CPMA are the biggest issues facing brokers and, when the time is right, we need to take collective action so that those in power hear a consistent voice from the sector. We continue to be engaged with members and all the stakeholders to prepare for our response to the future consultation papers. Lobbying together as one, both centrally and regionally, will be the best way to achieve change. IT

Eric Galbraith is chief executive of Biba.