Wholesale Insurance Brokers market study

After a large section of the broking community had been holding their collective breath, the Financial Conduct Authority (FCA) published its final report of the Wholesale Insurance Brokers’ market study, launched way back in November 2017, its aim was to assess how competition was working in the sector.

The good news. Overall, the FCA has not found evidence of significant levels of harm that merit the introduction of intrusive remedies. This report is, therefore, not an interim report but their final report.

The FCA has, however, identified some areas of concern that have scope for improvement including:

• firms’ management of conflicts of interest;
• the information firms disclose to clients; and
• contractual agreements between brokers and insurers which, in a small number of cases, have the potential to limit competition.

These areas coincide with the ongoing work being undertaken by the FCA to ensure that key provisions of the Insurance Distribution Directive (IDD), which came into effect in October 2018, are embedded, including (but not limited to):

• identifying customers’ insurance demands and needs
• product oversight and governance
• customer best interest rule.

The FCA plan to continue to work with firms to address the above concerns and will continue to monitor the market as part of its normal supervision function. This includes assessing developments arising from the impact of EU withdrawal and possible further consolidation in the industry and as a consequence of any changes in business models.

The findings were drawn from multiple pieces of analysis including market responses to the questionnaire looking at market features including conflicts of interest management, market shares and entry/exit. Throughout the project, the FCA engaged with market participants. This included brokers, underwriters and UK and international industry bodies.

So, whilst the markets breathed a collective sigh of relief that there was to be no further action or regulatory intervention, there are still lessons to be learnt.

Firms should look at the FCA findings and review these against their own practices.

Some things to think about…

• Have you carried out and updated your Conflicts of Interest Gap Analysis?
• Have the results of said analysis been transferred to a risk register with appropriate mitigation procedures and responsibilities?
• Have you reviewed your client facing documents to ensure that all the correct disclosures and information is available?
• Are all your agency agreements up to date and reflect current practice and regulatory thinking, here you may need the input of an appropriately experienced lawyer.
• Thinking about the IDD element, where you have schemes, have you familiarised yourself with the product oversight rules, these can be quite complex and do place additional responsibilities on a firm?
• In the midst of all the ‘noise’ don’t lose sight of the fundamentals which are really now encapsulated under the ‘Customer Best Interest’ rule.

Essentially, whilst nothing new, it has now formalised matters which perhaps were viewed as TCF issues.

When looking at any process or change, the starting point must be looking at how the proposal affects or benefits the customer and is it in their interests. So, whilst the review offered no major or new challenges, it is an opportune moment to be reminded of the need to keep on top of such matters and ensure that it meets the current regulatory expectation.

This document is provided for information purposes and is general and educational in nature. Nothing in this article constitutes legal advice. You are free to choose whether or not to use it and it should not be considered a substitute for seeking professional legal help in specific circumstances.