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The British Insurance Brokers’ Association (BIBA) is calling on the Financial Conduct Authority (FCA) to remove larger commercial clients from the scope of the Consumer Duty regulation.
BIBA presented its views in a formal response to the regulator’s discussion paper DP24/1, which invited feedback from the industry on regulatory approaches to commercial and bespoke insurance.
The consultation sought input on whether current regulations strike the right balance between protecting vulnerable customers and maintaining competitiveness in the commercial insurance sector. The FCA also proposed various ways to reduce regulatory obligations and potential costs for firms, encouraging industry-wide reflection.
In the discussion paper, the watchdog noted: “Products sold to commercial customers range from standardised products offered to sole traders, right up to individually negotiated contracts covering multiple risks for larger corporations. Sole traders and other smaller businesses are unlikely to possess insurance expertise and are more likely to buy standardised products.
“They may also not afford or have access to professional or legal advisors to effectively negotiate with the insurance market and resolve any associated disputes. In many ways, these commercial customers are akin to consumers. On the other hand, larger organisations are likely to have their own insurance and legal expertise, and the financial power to negotiate with insurers on a more equal footing.
“These differences present a challenge to us in ensuring that customers in the commercial insurance market are protected appropriately, while also not placing unnecessary regulatory costs on firms or impacting innovation.”
In response, BIBA argued that removing larger SMEs from the regulatory framework would ease the compliance burden on brokers. As indicated, many of these companies are well-versed in purchasing insurance and may even have professional risk managers, which makes them less susceptible to the risks the Consumer Duty is designed to address.
The trade body also emphasised the need to revisit the definition of a “retail customer” and pointed out that the current product value assessments for commercial clients impose significant administrative demands on brokers.
BIBA chief executive Graeme Trudgill (pictured) stated: “Reducing the scope of the Consumer Duty is one of our most important Manifesto aims, and we are delighted that the FCA has consulted on it. This is an opportunity to achieve change and help improve the burden of regulation on members.”
Trudgill added that it’s important to ensure that the intended protection is in place for those who need it.
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