Uncertainty around what the incoming Financial Conduct Authority (FCA) wants from the broking industry is causing the greatest concern in the market and greater clarity must be given before damage is done.
That was the view of a panel of some of the leading brokers in the country who gave delegates at the British Insurance Brokers’ Association (Biba) conference insight into what they thought would have the greatest impact on the industry.
The panel, made up of Gallagher chief David Ross, Lockton CEO, Julian James, Stuart Reid, Bluefin CEO, MD of the Towergate network division, Nick Houghton and Biba chairman, Andy Homer, discussed a range of topics from regulation to e-trading and the economy to the future role of brokers.
On the FCA and its perceived lack of clarity, Julian James said this was the main concern – that the industry still didn’t know what it was going to look like and what any changes would mean for the industry.
“The regulator has been talking about what it wants to do but we have not seen it in operation.
“They have been running a relatively predictable agenda up to now and you can build your business around it,” he added.
However he expressed concern that he couldn't get an understanding of what the regulator would and wouldn’t want five years down the line.
Stuart Reid added: “With a lack of knowledge comes fear. We have set up our businesses for the regulatory environment today and if it does change, it will cost us to adapt.”
Retrospective compliance
David Ross was slightly less diplomatic in his demands and said he feared retrospective compliance being forced upon businesses.
“I don’t care what they call themselves, they need to tell us what to do otherwise there is the problem of the regulator fining companies retrospectively.
“At the point when Hector Sants told financial services to ‘be afraid, be very afraid’, the lunatics are really running the asylum. When the regulator says they are going to be intrusive but not what they will be intrusive about, you’ve got a problem,” he said.
When questioned on the impact of the economy upon broking, the panel were agreed that it could lead to greater consolidation as brokers were finding it increasingly difficult to survive on their own.
Andy Homer predicted that if liquidity returned to the economy, then a new spate of consolidation could take place.
“If that liquidity returns, there are some fantastic opportunities for more consolidation. If the balance sheet allows you to buy other brokers, if you are adventurous enough to take the risk of borrowing money, there are assets that are good value,” he said.
Fixation with debt
While agreeing that consolidation could kick off again, Mr Ross questioned the need for debt to do this.
“Consolidation will come but its best to drive it with earnings – I don’t understand the fixation with debt.
“In the current economy, we have quadrupled the size of our business so long may the recession continue,” he quipped.
On where the future growth in the broking market would come from, the panel were unanimous that brokers who wanted to grow, would have to show willingness to change with Julian James recommending that brokers invest in staff rather than cut them.
“The industry made a massive mistake about four or five years ago. The reaction to the financial crisis of both insurers and brokers was to trim staff costs. My view is that is the dumbest thing you can do,” he said.
"If you are not going out and investing in people right now you are not going to survive the really tough times ahead,” he warned.
