As I write this column I’m en-route to the annual meeting of the World Federation of Insurance Intermediaries (WFII) in Rome to celebrate our 20th anniversary at a gala dinner. The cream of the global insurance broking community will gather both to mark the occasion but also to catch up on many issues of mutual interest. WFII has been instrumental in every major insurance event since 1999 – playing a crucial role in the resolution of challenges to cover post-9/11 and recalibrating our sector following the Spitzer investigation. It is also the cornerstone of LIIBA’s invaluable relations with our colleagues in Canada, South Africa, Australia, Latin America and the US – a partnership that delivers so much, most recently the disapplication of FATCA from general insurance. While we all face quite different markets, it is remarkable how common our concerns are. And how many of them relate to regulation.
My WFII colleagues provided valuable input to the recent FCA Wholesale Insurance Broker Market Study. This, and the trip, led me to think about the increasingly layered challenge of compliance. In Rome we will be joined variously by senior members of the European Insurance and Occupational Pensions Authority (EIOPA); the International Association of Insurance Supervisors (IAIS); and the Organisation for Economic Co-operation and Development (OECD), all of whom opine and publish on how they believe the business of insurance should be conducted.
IAIS’s core principles run to 25 chapters, each around 50 pages in length. EIOPA is the guardian of the Insurance Distribution Directive (IDD). OECD will present at WFII on its project on the ‘regulatory framework of insurance intermediaries and relevant developments in market conduct’. And once you get past that lot, you get to the national regulators themselves who have their own take on things. And for the international businesses in the LIIBA fraternity, there will be relationships with more than one of these.
Is this creating a tangled web of supervision with the potential to strangle risk transfer and innovation? Yes! And I say this with some confidence because of stories the FCA itself has told us. In the seventh of seven appendices to the Wholesale Study published in February, there is detailed customer research that the FCA carried out. This reports some very encouraging, if unsurprising, findings. Clients believe the London market ‘works efficiently’; they appreciate its ‘niche capacity, expertise and knowledge that is rarely available elsewhere’; they are ‘aware of charges and feel commissions/fees are…transparent’; they feel they get ‘very good value for money’. But they do have one or two gripes. Top of their list is compliance.
At the heart of the problem is the need to satisfy multiple regulatory regimes. US clients – our market’s heartland – report that they ‘not only [have] to comply with the US regulations in 50 states, they have additional requests from the [London] underwriters’ compliance departments’. And the confusion is amplified by different compliance departments taking different views on what is required and imposing differing requirements. The net result, as one US MGA puts it is ‘regulation on top of regulation is unfair to the customer. All of these costs along the way get back to the customer…it just drives up cost’.
And the process stifles innovation. ‘It just chokes out creativity and change. Once you have all of your compliance, making a change just takes too long’.
I have written this sentence in this column before, but here goes again. No-one is arguing against the idea that proportional regulation to protect vulnerable consumers should not be at the heart of a properly functioning global insurance industry. So, we will gather together three of these supranational institutions at WFII in Rome and our message is – surely, we could get to a better co-ordinated approach.
We must be able to recognise that, in two properly regulated territories such as the UK and US, a firm that is compliant in one jurisdiction could be trusted in the other to do the right thing. The alternative, which is what we have today, is a mishmash in which everybody asks for everything in a slightly different way. That creates cost and punishes the very end-consumer the regimes are supposed to be designed to protect.
