How UK brokers are adapting to a tougher compliance landscape

The UK broking sector is facing unprecedented regulatory pressures, particularly with the introduction of Consumer Duty and fair value assessments significantly increasing compliance obligations.

The purpose behind these regulations is to improve customer outcomes and deliver greater value for policyholders. The issue for many in the broking sector, however, is that this has led to a dramatic increase in administrative work – something that Biba regulation director David Sparkes questions the value of.

Sparkes explained: “The Consumer Duty provides that useful reminder, if one was needed, to focus on customer needs – something that brokers are particularly good at anyway.

“That part hasn’t added any amount of day-to-day work for brokers to do, because it’s their bread and butter – and the concept of Fair Value is certainly one we support, because it brings that welcome focus towards what customers are getting for their money, instead of just focusing on the price of the product.

“But, at the same time, there’s a lot of admin that’s part of the regulatory framework that goes with this, which members probably feel doesn’t add value.”

For Sparkes, much of the problem with the new regulatory environment lies in the inconsistent and excessive documentation requirements from insurers.

He explained: “When you’re doing this annual exercise of form filling, there are loads of forms from every insurer and they’re all different.

“This has created a whole cottage industry around filling in forms so that a process can be completed, rather than an outcome that can be improved.

“The whole process has become quite cumbersome and there is scope for the FCA to be doing something more, in terms of how we make that a more customer-focused, rather than a process-focused, requirement.”

Falling on the smallest

The issue of regulatory burden is particularly apparent for smaller brokers. Whereas large brokers often have dedicated compliance teams to manage these processes, smaller firms do not have this luxury.

Indeed, research from Biba and London Economics, conducted in 2023, found that these smaller firms in the UK were facing regulatory costs twice as high as in comparable jurisdictions, on average.

Insurance DataLab co-founder Dan King said that this has even led to some brokers being forced to put their businesses up for sale.

“We have heard of brokers being forced to sell their business because of the significantly increased regulatory burden. This desperately sad consequence doesn’t help the insurance industry, and certainly doesn’t help customers,” he explained.

Sparkes does not lay the blame solely at the feet of the latest round of regulatory changes, however, but more the overall impact regulation is having on the sector.

He added: “It’s the weight of regulation in the round [that’s the issue], not just Fair Value assessments.

“That is what’s probably tipping those smaller brokers into thinking ’do you know what? I will sell up and then I can go back to being a broker and let somebody else have the responsibility for the compliance side of things for me.’”

To combat this, Branko Bjelobaba, principal at compliance consultancy Branko, said it was vital that brokers take ownership of the compliance process.

He said: “Consumer Duty never stops – the reporting requirements aren’t twice a year, they’re three, four or five times a year and there’s a lot of confusion as to when you’ve got to do this.

“Brokers should have a wall planner and put all the FCA stuff in red.”

Brokers should also not be afraid of embracing partnerships to help solve the compliance conundrum, although Bjelobaba points out that ultimate responsibility always rests with the firm.

“As a small firm there’s two things you can do – either dedicate a resource to it, or work with support partners like Biba, people like me and other consultancies and buy resources where we provide you with the help,” he said.

“You can share the pain, in that these partners will do some of it for you and give you the right templates, but you still own the problem and you’ve got to dedicate [at least some] resource to it.”

Using technology

Technology also plays a key role in approaching the challenge of regulation and King urged brokers to adopt smarter compliance approaches to help manage the increased workload.

He said: “The regulatory landscape means that brokers find their resources under real pressure at the moment, but technology can help to ease that burden by introducing significant efficiency savings.

“Insurance DataLab’s digital platform, for example, helps brokers to quickly and easily find the data and insights they need to demonstrate good customer outcomes and make informed decisions without drowning in paperwork.”

But Bjelobaba says that to properly address the issue, there needs to be a greater level of standardisation across the market.

“Why don’t we have fundamentally agreed metrics,” he asks. “Like food labelling – when you look at the coloured band on a can of beans, the red means too much sugar, the green means it’s fine.

“You can form a view as to how healthy it is just by looking at five metrics. Same when you go into a restaurant, you get the hygiene rating. But in insurance land, we don’t have that level of transparency.”

Sparkes says there is precedent for this type of approach in the industry, but warned that it would need regulatory backing to be successful.

“Just before these Fair Value rules came in, all the trade associations got together and created a template that we believe would do the job,” he says. “So there’s a precedent for the industry agreeing something – so maybe we can do something, but it would need the FCA’s support as well.”