Do brokers need a code of conduct?

UK general insurance (GI) brokers are increasingly aware that if they want broking to be considered a profession, alongside those such as accountancy and law, they need to operate by a code of conduct.

The debate is over how this code should look, who should implement it and if it should be voluntary or mandatory. 

Biba head of compliance David Sparkes says: “We recently surveyed the membership about what sort of code they’d like and more than half responded, which is a great return for any survey. But 70% of those were saying ‘voluntary’, so it was a very clear message for us.”

On the back of this consultation document – A Pathway to Raised Standards – Biba has set up a working group to develop a voluntary code and supporting guidance. It will be based on the FCA’s principles for businesses and the CII’s code of ethics. 

A voluntary code would be more likely to get buy-in from brokers. 

CII director of financial markets Steve Jenkins says: “In general insurance there’s been an embracing of professional standards as an industry-led drive rather than it being mandated. They’re doing it because they know it’s the right thing to do.”

With the regulatory burden on UK brokers already high, there is concern that a compulsory code could mean more cost. Biba says UK brokers spend more on regulation than 23 other leading nations.

But a code with widespread industry buy-in could help reduce some of the compliance burden, Sparkes says. 

“Certainly the idea behind Biba’s code is that it doesn’t create more red tape, but it should send out a signal to the regulator that, ‘we want to 
do something’.”

Insurance Brokers Standards Council (IBSC) chairman Paul Anscombe says: “A voluntary code is a good starting point, but, inevitably, once the regulator sees a benchmark in terms of code of conduct and good practice, it will become mandatory fairly quickly.”

Voluntary or compulsory, many brokers feel the regulator should play a role in boosting professionalism.

Our survey says

Some 85% of brokers feel a code of conduct is needed to raise professional standards, according to this month’s Knowledge survey. Most said this should be compulsory (59%) and many felt Biba was the right body to implement it (38%). A code designed and implemented by the industry would potentially remove some of the regulatory burden it is under.

“What we do not need is our trade body acting as a pseudo-regulator,” warned one scheme broker. 

While respondents felt that conflicts in the broker business model remain, they were reluctant to go down the route of full commission disclosure, preferring the current system of declaring commissions on request. But there is a “need to show that the clients’ interests are put first and not the brokers’ income”, said the senior vice-president of one of the big three firms.

It was clear from many comments that more training and qualifications were necessary to raise standards. Achieving an Advanced Diploma in Insurance and attaining chartered status for broking firms was seen as a good thing to do (59%). 

Some respondents felt more encouragement is needed, perhaps by offering chartered brokers preferential business.

“There should be brand recognition for the chartered broker like there is for the chartered accountant,” said one broking chief. Another respondent thought there should be “better financial incentives given for professional qualifications by companies”.

Respondents did not feel delegated authority (DA) brokers were meeting insurer expectations (82%) and questioned the potential for conflicts of interest under that model. “Insurers have a greater access to market but less control over what business is written and at what rates,” said one.

While DA brokers can offer niche/scheme products, access to market and better control over claims, there was also a feeling they are an option because they are cheaper. “They create ‘dog food’ marketing with excessive confusion for the customer,” one broker complained.