The Big Question July/August 2022: How can insurers better support brokers with compliance?

Michael Sicsic, managing director, Sicsic Advisory

Not so long ago, insurers would have said that brokers’ compliance was not their problem - and brokers would have agreed.

This will all change with the FCA’s new Consumer Duty. Insurers and brokers will have a shared responsibility to ensure good outcomes for consumers.

Both brokers and insurers will be obliged to set out how their services provide good outcomes for end customers under the headings of communications, products and services, customer service and price and value.

Meaningful exchanges of management information (MI) will be needed between insurers and brokers to monitor progress against these metrics.

Those MI exchanges will need to go deep in order to be effective.

There needs to be a full discussion on what constitutes a good outcome and how these outcomes are measured, otherwise the MI will be based on fundamental differences over which party offers which element of customer service. Worse, parties’ views on fair value may contradict each other.

Insurers have more experience than brokers of how the FCA looks at these issues - this is how insurers can best support brokers.

However, these will not be easy discussions. Just consider, for example, the potential differences of opinion on the fair value offered by broker remuneration. I would recommend a third party to hold the ring and oversee the exchange of information.

There is not long to prepare for this dramatic shift in insurer and broker relationships. The final rules around the Consumer Duty principle are due in the next month and the regulation comes into force from April 2023.

Branko Bjelobaba, principal, Branko

‘FCA’ are three letters that should cause a chill to run down the spine of any regulated firm - and rightly so - but since Covid-19, the FCA has been firing stuff at brokers like there is no tomorrow. Talking to many brokers, they tell me they are suffering from an overload.

I am conscious that many brokers will be members of Biba, which is great and David Sparkes, the trade body’s head of compliance and training, continues to inform members regionally on regulation matters. However, there are still a number of brokers that are not Biba members, so how do they keep themselves up to date?

In my opinion, there are two ways to do this. Firstly, via insurers.

Insurers supporting broker compliance is really important because they have a vested interest in ensuring that the brokers they have agencies with are well run and compliant. Insurers’ money is at stake if they have granted a risk transfer to an intermediary.

Insurers have deep pockets and can easily inform, educate and entertain their brokers at the same event.

Secondly, brokers can keep up to date on compliance via the Chartered Insurance Institute’s (CII) network of 55 local institutes.

These are funded very generously by the CII and they typically have pots of money to spend on their members. The fact that everything has been online for the last two years means that local institutes have even more money to spend as they haven’t had to book room hire, drinks or buffets for recent events.

There is still so much to talk about when it comes to compliance and regulation - pricing, value assessments, Covid-related business interruption (BI) claims, Consumer Duty, the regulator’s eight-pager calling out everything going wrong in general insurance and multioccupancy insurances, to name a few key topics.

Remember, an informed and up to date broker is a better proposition for the client and insurer alike.

Peter Blanc, group chief executive of Aston Lark and president at the CII

It is vital that insurers keep on top of regulation and understand the FCA’s requirements for raising public trust across insurance professions.

With its new Consumer Duty, the regulator is placing more focus on outcomes, such as consumer understanding.

Given the complexity of many key risks, especially in the SME sector, these outcomes can often only be realised through brokers delivering high quality advice and ongoing client support. The skill sets that are needed to achieve these outcomes go beyond the technical skills that are assessed through one-off exams.

Tools for professionals that can help them meet the ongoing challenges set by the new Consumer Duty are actioning the CII’s Code of Ethics principles, engaging with the good practice guides produced by the institute’s membership societies and reading regulatory updates in the CII’s magazine, The Journal.

It is also worth noting that holding a CII chartered membership or fellowship involves a commitment to professional standards.

By working to achieve this status, members contribute to the industry-wide journey towards a united, trusted profession, raising public trust in the sector and promoting corporate social responsibility – which is what not only the regulator, but also the public and the profession, wants to see.

Chris Sime, group markets director, GRP

From a product governance perspective, the simple answer is that insurers need to speed up efforts to meet the FCA’s 1 October 2022 deadline for implementing fair value.

While some insurers have absolutely nailed it, the response from many has been lacklustre. They’re not even halfway through the workload, with only three months left to go.

We started new processes around product governance 18 months ago and provided templates for insurers to complete, but we still have to chase repeatedly to get these finished and the information we get back is often incomplete and inconsistent.

Of course, we recognise that insurers have their challenges – the real issue here seems to be a lack of understanding of what’s required.

Although insurers have a high level of governance and compliance, in practice, the actual documentation isn’t readily available.

We’re seeing examples of insurers requesting distribution details before they supply product information, but this communication can’t be one way or neither brokers or insurers will be ready for the FCA’s deadline.

Our current thinking is that if insurers miss the deadline, it will be very difficult to continue trading with them until they meet the new rules.

We’ve been putting the pressure on and it would be good to see the same from other brokers. If everyone works together, we’ll get the right outcome for the customer.