The insurance sector has been challenged to show greater leadership in demonstrating the value that brokers bring to designing commissions and on policing non-financial misconduct and promoting healthy work cultures.
The challenge came from Emily Shepperd, chief operating officer at the Financial Conduct Authority (FCA), in her address to delegates at BIBA Conference 2024.
She added that the FCA is looking into where it can reduce regulatory burden on brokers, particularly where insurance is placed through overseas brokers.
Touching on commissions, Shepperd explained why the regulator wrote to insurance CEOs in September to highlight two areas of concern.
This included where when the regulator examined multi-occupancy building insurance – known as MOBI – and guaranteed asset protection (GAP) insurance, there were signs that some aspects of the broker commission model were potentially “broken”.
She added that the FCA made clear that for MOBI insurance, leaseholders needed more transparency and that intermediaries should show the value they bring.
And with the sale of GAP insurance, Shepperd said the FCA’s data showed that only 6p in every pound of premium is used to pay claims – and 70p goes on commission.
“That raises a question about whether this amounts to fair value, and it is one we have written to firms about,” she said.
Shepperd’s comments follow an address from Graeme Reynolds, the FCA’s director of competition, in a webinar organised by Fairer Finance last month, where he said Consumer Duty Fair Value requirements do not mean firms cannot operate different charges or make a profit.
And this followed on from assurances given last October by Sheldon Mills, executive director for consumers and competition at the FCA, who said the regulator can take many forms of action against brokers that do not charge fair commissions – but that the banning of commissions or brokers is off the table.
Reducing regulatory burden on overseas brokers
But Shepperd also said that the FCA is considering where it can reduce the regulatory burden on brokers, particularly when insurance is placed through overseas brokers.
“The UK insurance industry services customers across the world,” Shepperd said.
“We want regulation that works for individual consumers purchasing motor insurance, for large corporations arranging complex insurance contracts, and for everything in between.
“That is why last year – and this is particularly relevant for wholesale insurance – we made some important changes to limit the rules that apply where insurance is arranged through overseas brokers and for customers outside the UK.
“Since then, we have been engaging with the industry to further consider how we might make changes to reflect the operation and customer base of the commercial insurance market, give greater clarity on our expectations and avoid duplication and reduce the burden of regulation where appropriate.
“We won’t do anything that will risk the essential protections that our rules provide for consumers and SMEs. But we do think we could simplify things for everyone.
“We really welcome the constructive engagement we’ve had with the industry, including discussions with BIBA members.
“We will have more to say in the coming months so watch this space.”