BIBA research reveals regulation costs brokers 8% of their fees and commissions
Authored by BIBA
New research from the British Insurance Brokers’ Association (BIBA) shows that direct regulatory costs for brokers are 40% higher than in 2019 and overall direct and indirect costs are equal to 8.1% of insurance mediation fees and commissions.
Published in its 2023 Manifesto, the triennial research run by London Economics has been deemed by BIBA to be the most worrying since it was first carried out in 2014.
Almost all survey respondents reported that direct and indirect regulatory costs have increased since 2016. Moreover, the majority of survey respondents considered that these costs had increased by more than 25% since 2016.
Steve White, BIBA CEO (pictured) said: “Insurance brokers are experiencing significant financial pressures in a similar way to many businesses across the UK including much higher energy costs along with high levels of small business rates or corporation tax. In addition, the cost of regulation for insurance brokers is at an all-time high and we will be taking our Manifesto calls for action to the FCA and Government.”
In its new Manifesto BIBA is calling for the Financial Conduct Authority (FCA) to reduce the disproportionate burden of regulation, and to reduce the authorisations backlog. It is also calling for Government to take advantage of Brexit freedoms to ensure that the incoming obligation (in the Financial Services and Markets Bill) for the FCA to facilitate the long-term growth and international competitiveness of the financial services sector carries sufficient weight and is backed by reporting requirements on the regulator.
In comparison to other countries, the direct regulatory cost in the UK insurance broking sector overall is one of the highest, relative to the 21 other jurisdictions covered by the present report. This cost is more than twice as high as the average across all jurisdictions in the case of a small broker; and more than four and five times as high in the case of a medium sized broker and a large broker.
When considering further opportunities for change, BIBA welcomed the Government’s ‘Edinburgh reforms’ which aim to ‘ensure the sector benefits from dynamic, and proportionate regulation’ and the trade association is committing to engage with this process.
BIBA is also calling for the FCA to introduce a fairer structure around FSCS funding and welcomed the FCA’s forthcoming review of the funding class thresholds. White added: “Working with independent economics consultancy Oxera, we have proposed simple modifications to the funding model that would resolve the current imbalance in the fee charging structure. The insurance broking sector, which is made up largely of small firms, contributes 52% of the funding when there are calls on the retail pool ‘backstop’, despite never causing a call on it themselves. A greater alignment with the ‘polluter pays’ philosophy would see those sectors that are making claims contribute a fairer share.”
Addressing one of the big challenges from 2022, overall, 85% of the research respondents reported that the work involved in the Fair Value Assessment process was not proportionate to the little benefit it delivered for customers.
Finally, BIBA’s Manifesto also highlights that one consequence of the heavy burden of regulation is the number of general insurance intermediaries in the UK has nearly halved since 2006, reducing from 8,261 in 2006/7 to 4,197 in 2021/22. Many brokers exiting the market state that disproportionate regulation was the primary reason for their exit.
The British Insurance Brokers' Association (BIBA) is the UK 's leading general insurance organisation representing the interests of insurance brokers, intermediaries and their customers.
BIBA membership includes 1,700 regulated firms. BIBA brokers handle around half the value of all UK home, contents, motor, travel, commercial and industrial insurance policies. Insurance brokers make a direct and indirect contribution of 1% to UK GDP.