Financial Services and Markets Appendices to the Minutes of Evidence


APPENDIX 40

Memorandum by the Institute of Insurance Brokers

  We are writing to you as a member of the Special Select Committee, which has been established to make recommendations on the draft Financial Services and Markets Bill.

  Our interest concerns those elements of the proposals, which include, "the power to repeal the Insurance Brokers (Registration) Act (IBRA) 1977" and the detrimental effect of same to the public interest.

  Firstly, it is appropriate that we declare our interest as the only professional body in the UK, exclusively dedicated to representing the interests of insurance broking practices and in more recent times as administrators of the Act. Furthermore, that at present there is a heated debate within the industry with regard to the proposal to repeal the statue.

  Brief details are as follows:

    (1)  The IBRA 1977 provided for the registration of insurance brokers and for the regulation of their professional standards. At the time of writing over 13,000 individuals and 3,000 firms are regulated thereunder.

    (2)  By the very nature of the IBRA 1977, it necessitated the establishment of a Council, as a body corporate with perpetual succession.

    (3)  From a public interest point of view the IBRC:

      (a)  Resolves over 95 per cent of consumer complaints about their brokers/insurers within seven days—the remainder being of a nature which require detailed investigation and are settled later.

      (b)  Has an Indemnity and Grants Scheme to compensate consumers with a legitimate claim against an insurance broking practice which has ceased trading or is unable to settle.

      (c)  Holds over 30,000 cubic feet of records (going back many years) which need to be accessed regularly, in order to investigate all manner of consumer related matters (which under the Statutes of Limitation can arise many years after a policy of insurance was issued or "insurance advice" tendered), often involving other statutes, such as those relating to Employer's Liability, Third Party Motor Insurance, etc. Sometimes very considerable sums of damages/compensation are involved, whereby properly maintained IBRC records may be the only source of assisting legitimate claimants to trace the existence of indemnity at the material time—which some insurers faced with a major claim would prefer to have gone missing.

      (d)  Assists the Financial Services Authority in discharging its responsibilities under the provisions of the Financial Services Act 1986, there being a considerable need for close co-operation, perhaps for many years to come (again, in the consumer interest).

  4. Quite simply, the IBRA 1977 cannot just be "switched off like a light bulb", without causing a legally unenforceable "trail of debris" for many, many years to come.

  5. It is our belief that the HM Treasury officials responsible for advising the Minister were quite oblivious to the above mentioned matters and many others which would follow a repeal. However, to be fair, at the time they were being lobbied hard by elements of the industry opposed to the statutory regulation of all those who "give insurance advice" and in favour of the establishment of a non-statutory self-regulatory framework instead (i.e., the proposed General Insurance Standards Council).

  6. It is our further belief that ultimately, "advising upon/arranging policies of insurance" will be subjected to statutory regulation (whether via powers to be included in the Financial Services and Markets Bill or, an EU Directive—i.e., it is only a matter of time rather than fact). In this regard it would make sound sense to address the matter properly now, whilst the ideal opportunity exists and ensure that there is proper and prudent continuation of consumer protection, which as mentioned above was always intended to be in perpetuity.

  7. In our opinion, the Financial Services Authority should become the custodians of a suitably amended IBRA 1977, which should be a mandatory requirement for all "independent insurance advisers". Under such a scenario the existing administrative centre could continue operating (reporting to the FSA)—thus avoiding a further administrative burden on the FSA itself at this very busy time for the Authority. Furthermore, we believe that the proposed GISC could be developed (again accountable to the FSA) to regulate insurer direct sales and tied/multi tied agents.

  8. Insurance Brokers themselves wish to retain their professional status, of which they are justifiably proud (having been volunteers for statutory regulation for over 20 years). This should not just be taken away from them. A copy of the survey[10] recently conducted by this Institute is enclosed for your information, which clearly illustrates the strength of feeling, which has been further evidenced by the vast majority of brokers who have paid their regulatory retention fees for 1999 against the background of "impending doom" announced by the Treasury.

  We feel that by way of this communication, we have warned of the serious consequences a repeal of the IBRA 1977 would cause, unless there is some form of statutory perpetual succession and in the absence of same, the detrimental effect to the public interest and all those who have transacted business with insurance brokers—acting in reliance of the protections afforded under the Act.

  We would be pleased to meet with members of your Committee, in order to elaborate on any of the issues raised and answer any questions you may have on this subject, before you conclude your report to government.

26 March 1999


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