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“We are planning to do further work to verify that insurance brokers are conducting appropriate due diligence on the insurers they use.”
Those were the words of the Financial Conduct Authority (FCA) as it hammered home the importance of due diligence following the failures of several insurers, stressing the vital role played by insurance brokers. The FCA said these intermediaries should be able to demonstrate that they have carefully considered the providers that they place their customers’ business with.
“Suitable due diligence is a key part of the process that we expect insurance brokers to perform on the insurance companies they use,” stated the regulator. “Our main concern is the risk to customers in the event the insurer fails and is unable to pay claims.
“The failures of Alpha, Enterprise, and Gable demonstrated the harm that can be caused to customers as over one million policyholders had to find alternative insurance cover.”
Describing brokers as being seen as “trusted professional advisers and experts on insurance matters,” the FCA said they should be comfortable that they are placing customers’ business with an insurer where the brokers themselves would be happy to be a policyholder.
“We expect brokers to clearly detail the name and address of the insurer in the literature provided to customers,” added the financial watchdog. “We have seen examples where some brokers think the Managing General Agent (MGA) is the insurer and are not aware of the insurer behind the MGA.
“It is important that customers can make an informed decision on where their insurance is being placed.”
