Briefing: Interpreting ‘beast’ of regulation is ‘battle’ due to unclear FCA communications

By editor Katie Scott

Since joining Insurance Times in October 2019, broking trade body Biba has been banging the drum for appropriate and proportionate regulation for the UK’s insurance brokers.

Its work to date culminated within its latest manifesto document, published on 24 January 2023, which included a chunky section entitled A broking sector that has proportionate regulation is best positioned to support UK growth.

The key themes identified within Biba’s 2023 manifesto were based on member feedback delivered from a 10-event roadshow the association completed in autumn 2022.

This consensus among brokers regarding “painful and time consuming” regulation was mirrored by attendees at Bravo Networks’ annual conference, this year held on 1 and 2 March 2023 in Birmingham.

At this month’s event, insurers too commented on the challenges that are thrown up by regulatory compliance – however, while not grumping at the purpose and intent of industry-wide regulation, insurers did take issue with the lack of crystal clear guidance and implementation frameworks from the FCA, with NIG’s managing director, Sonya Bryson, noting that the interpretation of new rules “is half the battle”.

Address delegates during a panel discussion, Bryson said: “You get this massive list of rules, which isn’t at all a list of rules – it’s a great, big document that you have to interpret and the regulator is there for you to [only] ask questions. The interpretation is half the battle.

“Each insurer will interpret [new rules] differently based on their own controls, governance and attitude to risk. But that’s half the battle, just navigating that interpretation piece.”

Nick Hobbs, chief distribution and regions officer at Allianz Insurance, agreed with Bryson – he said that although the FCA was very good at outlining its intentions and ambitions, it is consistently remiss in setting out how firms should actually go about actioning its wishes.

“[The FCA is] really good at telling you what [it does not] want – [it doesn’t] tell you what [it does] want,” he explained.

Managing the ‘beast’ of regulation

One way to cope with this industry-wide undercurrent of frustration around the FCA’s alleged inability to define and promote a single interpretation of its rules is to remain focused on the ultimate purpose of regulation, Bryson continued.

She explained: “It’s a big old beast, regulation. One of the things that’s easy to forget when we’re right in the middle of a new regulation [or] a new deadline is [that regulation is] there to generate great customer outcomes.

“From an insurer’s perspective, when you start thinking about how you’re going to implement [new regulations] on [lots of] legacy systems, all with really tight time scales, then it does become a bit of a beast, so we have to keep remembering why it’s there.

“The reason things need to change is because they weren’t right to begin with, so it has created a big burden.

“[Regulation is] here for the right reasons, but it can be quite painful and time consuming.”

Bryson continued that across recent years, regulation has moved from being “a ‘side of the desk’ activity” to having to be “front and central to absolutely everything that we do”. Aviva’s regional brokers distribution director, Ryan Birbeck, added that this shift in workload has had “a huge impact on people” and internal resources.

In turn, the uptick of regulation and its associated admin has affected insurance firms’ business operations and activities too.

Bryson explained: “Any innovation we’re talking about, product development that we’re considering, just general strategic thinking – regulation has got to be the number one priority, just to try and futureproof the business as much as possible.”

For Bryson, this emphasised focus on regulation means that innovation and “bringing sexy, nice products to market” sometimes has to take a backseat, therefore hampering business growth.

But, if this sacrifice results in better customer outcomes and improving the sector’s reputation, then regulation should be viewed as a “necessary distraction” – albeit that insurers would “much rather get on with the exciting stuff”.

Does teamwork make the dream work?

Bryson does not think the FCA is truly aware of the weighty burden it is placing on brokers and insurers – due to believing in the underlying reasons for regulation, Bryson added that this problem is therefore a cross that brokers and insurers simply have to bear.

Hobbs and Bryson agreed that a primary challenge alongside working out how to implement regulation is how to successfully evidence this process.

“The benchmark is getting higher every time, so it’s not just about implementing [regulation], it’s about evidencing how you’ve implemented it and being able to stand behind that,” Bryson explained. “Data is key to implementation.”

For Mike Bottle, senior vice-president at Arch Insurance, a further way to tackle the regulatory burden is for insurers and brokers to better collaborate and lean on each other to get the job done.

He feels this would be effective because brokers are often closer to the end customers than insurers.

Based on these conversations at Bravo Networks’ conference, it feels that regulation continues to be the industry’s sore spot.

Although firms understand and appreciate why regulation is in place, making the administrative processes around regulation work for all parties still seems to be a pipe dream.

But, with the FCA finally engaging with the market more visibly through its director of general insurance and conduct specialists Matt Brewis, we must have hope that continued two-way conversations will lead to a succinct improvement.

As usual though, don’t expect any possible positive changes to be imminent.