Britain’s wholesale insurance brokers got a clean bill of health from the markets watchdog on Wednesday, providing some relief for an industry already spending millions of pounds on Brexit.
London’s insurance market, which spans the Lloyd’s of London market and brokers such as Aon, Willis Towers Watson, JLT and Marsh, controlled 60 billion pounds ($78 billion) in gross written premiums in 2017.
The Financial Conduct Authority announced a review in November 2017, saying there were concerns about how large players place business to earn larger fees.
But on Wednesday the FCA said in a statement it had “not found evidence of significant levels of harm that merit the introduction of intrusive remedies” and ended its review.
However, the watchdog said it identified areas for improvement, including how brokers manage conflicts of interest, the information they disclose to customers, and contractual agreements between brokers and insurers which, in a small number of cases, have the potential to limit competition.
The FCA said it intended to follow up bilaterally with the small number of firms who have clauses in their agreements with insurers which could potentially restrict competition, meaning no costly, sector-wide reform.
Steve White, chief executive of the British Insurance Brokers’ Association, said there were “many positives” to the FCA’s report, such as the watchdog dealing with any follow up matters on a business as usual, supervisory-led basis.
The Association of British Insurers said it was right for the FCA to keep a close eye on the market to promote transparency for customers and to act on conflicts of interest.
A focus of the review was “broker facilities,” where a broker groups together different types of insurance business for different clients, and then allocates chunks to insurers.
This should make insurance cheaper for clients but can leave insurers with little scope to dictate their own terms. The FCA said conflicts of interest should be managed better.
London Safe for Now
The FCA found no evidence of excessive profitability, and said the largest brokers do not appear to be consistently earning the highest commission rates or client fees, with customers able to exert a reasonable constraint on brokers.
“This will be welcome news for brokers who have been working hard to transform their business models in evolving and uncertain markets,” David Miller, an insurance partner at consultancy KPMG, said.
There was also no evidence that “pay-to-play” exists on a scale warranting intervention, a reference to brokers forcing customers to buy consultancy services in return for insurance business.
The FCA said Britain’s planned departure from the European Union next month has led to smaller firms pulling out of the market, which may reduce competition and choice in future.
“Given that London’s historical reputation and specialist skills are driving customer demand, it is unlikely to be affected by the withdrawal from the EU, at least for larger, more complex risks,” the FCA said.
Lloyd’s of London, which has opened a Brussels hub, is ditching paper and digitalizing its business, which could also shrink potential demand for brokerage services, the FCA said.
($1 = 0.7671 pounds) (Reporting by Huw Jones; editing by Alexander Smith)
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