Brokers set to win risk transferbattle

Commercial lines brokers may win risk transfer by default as the FSA advises insurers on the implications of rewriting their agency terms. According to broking sources, the FSA has taken a "dim view" of the plans of several insurers to rewrite their agency agreements to remove the possibility of risk transfer. Royal & SunAlliance, Norwich Union and AXA are among the insurers known to be rewriting their agency agreements.The debate revolves around the FSA's interpretation of agency law. Sources said that the FSA has advised insurers that if agency agreements give brokers the authority to attach cover on behalf of insurers, the broker is the agent of the insurer, rather than the client. In such cases, the FSA believes that responsibility for the client money risk lies with the insurer.Brokers say that insurers want to remove their responsibility for the client money involved, but continue to give brokers the authority to attach cover. "The FSA has said it's all or nothing," said one broker. "Either they remove the ability of brokers to attach cover and avoid risk transfer or keep it, in which case they are stuck with risk transfer."He said that the outcome would affect the majority of commercial lines brokers, as most would have at least one binder to underwrite on behalf of an insurer. "That means 99% of brokers will be affected."An FSA spokeswoman said that some existing agency agreements "may have some or all of the characteristics of risk transfer". "We've been talking to major insurers about agency agreements with a view to clarifying our interpretation of agency law," the spokeswoman said.

Risk transfer: the story so farIn CP174 the FSA proposed two ways for brokers to guarantee the safety of client money; either by transferring the risk to insurers or by keeping client money in segregated accounts. A group of brokers unsuccessfully lobbied the FSA to make risk transfer mandatory, arguing that under current agency agreements insurers already take responsibility for client money. But in its near-final rules, the FSA opted to maintain its stance giving insurers the discretion to choose which, if any, brokers they accept the client money risk for.