Principal firms and their appointed representatives (ARs) are responsible for three times more complaints regarding health, protection and other general insurance products than directly authorised firms.
The figures came from data published by the Financial Conduct Authority (FCA) which analysed supervisory cases, its own complaints data and that of the Financial Ombudsman Service (FOS).
It was laid out to explain why the regulator believed it was necessary to take action and tighten rules on the principal and AR business model.
On average directly authorised firms that are not principals accounted for one general insurance and protection complaint each.
However, principals and their ARs accounted for three cases per firm in the insurance market.
Five times higher in smaller firms
The figures were similarly stark when comparing complaints rates based on the amount of revenue firms earned from regulated activities in the general insurance sector.
For small businesses earning less than £200,000 per year, DA firms only caused 12.1 complaints per £1m of revenue, while principals and ARs triggered 58.8 cases per £1m – almost five times as many.
For firms earning between £200,000 and £1m per year principal and AR complaints were more than double at 9.2 compared to 20.2 per £1m.
Among businesses earning between £1m and £5m the gap closed with principals and ARs 1.27 times higher than non-principal firms, and this remained similar for the biggest firms earning more than £5m in revenue where it was 1.7 times higher.
However, it is worth noting that the rate of complaints generated by general insurance regulated firms was significantly higher at all business sizes than other product lines.
This was especially so among the smallest principal firms and the largest non-principal and principal firms.
‘Not able to resolve problems’
The data in its CP21/34 showed that principals have more complaints per £1m of revenue compared to non-principals, particularly where they are smaller in size, the FCA noted.
“This suggests that smaller principals are not able to resolve problems leading to complaints as effectively as larger principals,” it said.
It added that complaints are generally higher for principals than non-principals across sectors apart from principals in the mortgage intermediary sector with less than £200,000 revenue from regulated activities.
The regulator did acknowledge some limitations to its data and that complaints could be made about different aspects of a firm’s work, but it argued there was sufficient evidence to support the intervention.