Advisers do not stand alone when it comes to regulation and Europe. Paul Robertson talks to Steve White, your man in Brussels
White explained: “There are three types of firm in that pot: insurance brokers set up to sell insurance to customers, firms who have insurance plus one or two FSA permissions (IFAs, mortgage brokers and banks) and firms with an insurance permission but aren’t brokers (doctors, dentists, vets, caravan parks, motor dealers and credit brokers).
And it’s the credit brokers who mis-sold payment protection insurance, failed and are not around to pay compensation.”
White said the problem will get worse before it gets better. So how bad could it get?
“There’s roughly a two-year gap between complaint activity and compensation activity. So to work out what the compensation activity will be tomorrow, you need to look at what the complaint activity is today.”
Tsunami of complaints
Well, two years ago PPI complaints ran at 30,000 in the year; 50,000 one year ago, and 104,000 the year just closed.
“There is a tsunami of complaints coming through,” said White.
“Bills readers get at this time of the year are driven by rules in place in April. We need the FSA consulting pretty quickly to change the rules for April 2012. If they’re not consulting by the end of September, it is very unlikely they will have the time to change the rules for April 2012, which means by summer 2012, firms are going to get bigger bills.”
Apart from consulting, BIBA wants an end to cross-subsidies the UK is the only place where insurance intermediaries are exposed to the potential failure of banks and a separation within the insurance intermediary pot for the professional insurance broker.
“The problem we have is getting the FSA to consult sooner rather than later,” said White. One problem is pre-funding of the scheme.
“From the FSA’s point of view, we currently have a post-funded cross subsidised scheme. We know that Mark Hoban [Financial Secretary to the Treasury] doesn’t like pre-funding because he’s publicly said, so they will probably only pre-fund what they have.
“They will probably pre-fund banking and investment, but post-fund insurance and I can’t see how you could have a cross-subsidised scheme that is pre-funded here, pre-funded there and post-funded here.
“From the FSA’s point of view, this is an absolutely fundamental review and we know from past experience that any changes to the way compensation is funded is very, very difficult because you will never please everybody.”
The big question is: will the FSA will be consulting on this by September? “I think it unlikely. It doesn’t mean to say we’re going to stop pushing for this because we believe it’s fundamentally unfair the way it’s currently funded.”
In summary, White’s case is insurance advice is an important sector, with a 1% direct and indirect contribution to UK GDP, the same level as the agriculture sector.
“That 1% should entitle us to a more tailored approach from the regulator,” said White. “We’re the lowest risk area it’s got and we just get tacked on the back of other pieces of work. Well, we should be entitled to something better than that.”
He’s right.
