Brokers must prepare for the possibility they will have to maintain a 4% premium solvency margin, a leading regulation expert has said.
The recently released EU Insurance Mediation Directive set ou ...
Brokers must prepare for the possibility they will have to maintain a 4% premium solvency margin, a leading regulation expert has said.
The recently released EU Insurance Mediation Directive set out four options for ensuring consumer protection in firms' solvency levels.
One proposed that 4% of premium income received be set aside to meet liabilities in the event of solvency problems. However, regulation consultant Robin Wood said this would mean a significant amount of money for some small brokers.
"For a broker with a £5m throughput and brokerage of £500,000, they're talking about around £200,000," he said.
"It's not a bad thing, but people need to recognise it's there and make arrangements for it."
Biba chief executive Mike Williams agreed that 4% was a serious sum for small brokers, but questioned the setting of an arbitrary percentage.
"What possible relevance does 4% have if a broker goes bust with several millions of pounds deficit," he asked.
"We prefer the GISC approach, which is that brokers should always be able to show themselves to be solvent.
"It's puzzling why that figure has been settled on."
