Airmic members given voice in FCA broker review

The Financial Conduct Authority (FCA) is taking in the views of Airmic members for its review of market competition in the wholesale insurance broker sector, officially launched at the end of last year. Airmic is supportive of the report, and is working with the FCA to ensure policyholders are fairly represented, it has said.

"We believe the market should welcome this review," Airmic CEO John Ludlow commented. "A healthy and more competitive market is better for all players, and will especially benefit brokers and insurers who are genuinely innovative and adding value to their client.

"We have worked with, and are supportive of, the review. But from Airmic's perspective, our main priority is to ensure the FCA takes proper account of our members' views and we have been very encouraged and pleased to see this happening through various meetings, roundtables and individual interviews."

Members are best placed to assess system

Mr Ludlow added that Airmic members have a "very good working relationship" with their brokers but are also well-positioned to see where the system may not always work exactly as desired: "Ultimately, the competitiveness, reputation and diversity of the market are the key tests of the system and our members are best-placed to shine a light on the current state of play."

The subject of broker business models has long been a sensitive issue, but unease among members about potential conflicts of interest has risen in recent years, Airmic surveys have shown.

"Significant changes" in wholesale insurance sector

The current FCA review has been prompted by "significant changes" in the wholesale insurance sector in recent years, according to the regulator, which has seen brokers developing new services and business practices. "The FCA plans to explore how competition is currently working and whether it could work better", it said.

Christopher Woolard, FCA executive director of strategy and competition, added: "If businesses cannot get appropriate cover or pay more for services than they should, it can impact on their ability to operate and grow. 

"Brokers play an important part in the wholesale insurance sector ensuring clients get appropriate coverage at good value. However, following significant changes in the sector, we are looking at the dynamics to ensure competition is working well."

The FCA added that it will use the study to:

• Look at how brokers compete in practice and whether they use their bargaining power to get clients a good deal;
• Assess what conflicts of interest exist, how they are managed and how they affect competition and client outcomes;
• Examine how broker conduct impacts on competition in the sector.

Regulation is a "blunt tool"

Airmic does not take a view on what business models brokers should or should not be using, Mr Ludlow stated. "The most important factor, in our view, is that there is full transparency. Our main concern is that members have the complete picture about where there may be potential for conflicts of interest, and how these are being managed.

"The vast majority of broker dealings are fine and policyholders get an excellent and valued service from their brokers. But for that last four or five percent, the waters can be a bit muddied and we therefore welcome having the FCA - a neutral body - give their verdict on the system."

However, regulation is a "blunt tool", according to Mr Ludlow, and should only be one part of the solution. Policyholders should make sure they are well-informed about the services they are being offered.

"Our members should be taking a proactive approach - they should be asking questions of their broker before placement, and making sure they are absolutely clear about how insurers are selected and how products are tested against the open market."

Airmic produced an "excellent guide" last year to help insurance buyers ask the right questions, he added: "So I'd encourage members to revisit the report if they haven't done so already."

SMEs must understand what they are buying

Education is especially important in the SME market where many companies do not have a professional insurance specialist, Mr Ludlow noted. "We need to see better informed buyers. The more we can get down into the mid-market and educate CFOs and company secretaries who are often the ones responsible for insurance purchase, the better.

"It is not good for the long-term health of the market to have businesses buying products that they do not all fully understand," he added.

The FCA has invited the market to give its views by 19 January 2018. Airmic members can do so by emailing wholesaleinsurancebrokersmarketstudy@fca.org.uk.