FCA identifies ‘some areas of concern’ in insurance broker market
The UK Financial Conduct Authority (FCA) has found no significant issues to “merit the introduction of intrusive remedies”, following its review of the wholesale insurance brokers market.
However, in its final report, the FCA did identify “some areas of concern”. These included how firms manage conflicts of interest, the information firms disclose to clients and potential issues concerning contractual agreements between brokers and insurers. For the latter, there have been “a small number of cases” where these agreements have had the potential to limit competition, the FCA said.
The authority said it would work with firms to address these concerns and will continue to monitor the market to determine how Brexit plays out, particularly around further consolidation in the industry and subsequent changes in business models.
Christopher Woolard, FCA executive director of strategy and competition, said: “This was a significant and in-depth analysis of a sizeable and complex market to determine whether clients were at risk of harm. Encouragingly, we found no evidence that they were but we found some areas with scope for improvement and we will work with the industry to ensure these are addressed. We would like to thank the firms and industry groups who participated in the study.”
The London and International Insurance Brokers’ Association’s CEO Christopher Croft welcomed the findings and said “it would be fair to say has given intermediaries a clean bill of health”.
He added: “Our position has always been that customers are benefitting from broader coverage than ever before, on high quality paper at historically low prices – this is the best possible outcome for them in the risk transfer process. This study offers strong evidence to back that view across all aspects of the value chain.
“The fact that this is the final report – a first for the FCA, brings an end to this piece of work and the FCA will take up any concerns with individual firms in the normal course of its regulatory processes. Liiba will continue to work closely with the FCA to ensure a proportionate approach to the regulation of our market.”
Sheila Cameron, LMA CEO, said: “We are actively pursuing technological advancements such as PPL which should increase market efficiency and allow us to continue to provide complex and comprehensive insurance solutions, together with world-leading claims handling, at the most competitive rates for our policyholders.
“We are supportive of the FCA’s proposal to address specific instances of conflicts of interests, or anti-competitive contractual agreements or practices. As we stated in our response to the FCA’s terms of reference for the study, we support full disclosure of remuneration by brokers to their clients and we will work with the FCA to ensure that the Lloyd’s market remains the world’s leading specialist insurance hub with sustainable broker/insurer dynamics.”
The study was launched in November 2017 to examine competition in the sector as the London Insurance Market (LIM) is one of the largest global centres for underwriting large-scale, complex commercial and specialty risk. When the study was launched the market was responsible for around £60 billion in gross written premium. It is a hub for large commercial and specialty risk underwriters with international clients.
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