Memorandum by the Institute of Insurance
We are writing to you as a member of the Special
Select Committee, which has been established to make recommendations
on the draft Financial Services and Markets Bill.
Our interest concerns those elements of the
proposals, which include, "the power to repeal the Insurance
Brokers (Registration) Act (IBRA) 1977" and the detrimental
effect of same to the public interest.
Firstly, it is appropriate that we declare our
interest as the only professional body in the UK, exclusively
dedicated to representing the interests of insurance broking practices
and in more recent times as administrators of the Act. Furthermore,
that at present there is a heated debate within the industry with
regard to the proposal to repeal the statue.
Brief details are as follows:
(1) The IBRA 1977 provided for the registration
of insurance brokers and for the regulation of their professional
standards. At the time of writing over 13,000 individuals and
3,000 firms are regulated thereunder.
(2) By the very nature of the IBRA 1977,
it necessitated the establishment of a Council, as a body corporate
with perpetual succession.
(3) From a public interest point of view
(a) Resolves over 95 per cent of consumer
complaints about their brokers/insurers within seven daysthe
remainder being of a nature which require detailed investigation
and are settled later.
(b) Has an Indemnity and Grants Scheme
to compensate consumers with a legitimate claim against an insurance
broking practice which has ceased trading or is unable to settle.
(c) Holds over 30,000 cubic feet of records
(going back many years) which need to be accessed regularly, in
order to investigate all manner of consumer related matters (which
under the Statutes of Limitation can arise many years after a
policy of insurance was issued or "insurance advice"
tendered), often involving other statutes, such as those relating
to Employer's Liability, Third Party Motor Insurance, etc. Sometimes
very considerable sums of damages/compensation are involved, whereby
properly maintained IBRC records may be the only source of assisting
legitimate claimants to trace the existence of indemnity at the
material timewhich some insurers faced with a major claim
would prefer to have gone missing.
(d) Assists the Financial Services Authority
in discharging its responsibilities under the provisions of the
Financial Services Act 1986, there being a considerable need for
close co-operation, perhaps for many years to come (again, in
the consumer interest).
4. Quite simply, the IBRA 1977 cannot just be
"switched off like a light bulb", without causing a
legally unenforceable "trail of debris" for many, many
years to come.
5. It is our belief that the HM Treasury officials
responsible for advising the Minister were quite oblivious to
the above mentioned matters and many others which would follow
a repeal. However, to be fair, at the time they were being lobbied
hard by elements of the industry opposed to the statutory regulation
of all those who "give insurance advice" and in favour
of the establishment of a non-statutory self-regulatory framework
instead (i.e., the proposed General Insurance Standards Council).
6. It is our further belief that ultimately,
"advising upon/arranging policies of insurance" will
be subjected to statutory regulation (whether via powers to be
included in the Financial Services and Markets Bill or, an EU
Directivei.e., it is only a matter of time rather than
fact). In this regard it would make sound sense to address the
matter properly now, whilst the ideal opportunity exists and ensure
that there is proper and prudent continuation of consumer protection,
which as mentioned above was always intended to be in perpetuity.
7. In our opinion, the Financial Services Authority
should become the custodians of a suitably amended IBRA 1977,
which should be a mandatory requirement for all "independent
insurance advisers". Under such a scenario the existing administrative
centre could continue operating (reporting to the FSA)thus
avoiding a further administrative burden on the FSA itself at
this very busy time for the Authority. Furthermore, we believe
that the proposed GISC could be developed (again accountable to
the FSA) to regulate insurer direct sales and tied/multi tied
8. Insurance Brokers themselves wish to retain
their professional status, of which they are justifiably proud
(having been volunteers for statutory regulation for over 20 years).
This should not just be taken away from them. A copy of the survey
recently conducted by this Institute is enclosed for your information,
which clearly illustrates the strength of feeling, which has been
further evidenced by the vast majority of brokers who have paid
their regulatory retention fees for 1999 against the background
of "impending doom" announced by the Treasury.
We feel that by way of this communication, we
have warned of the serious consequences a repeal of the IBRA 1977
would cause, unless there is some form of statutory perpetual
succession and in the absence of same, the detrimental effect
to the public interest and all those who have transacted business
with insurance brokersacting in reliance of the protections
afforded under the Act.
We would be pleased to meet with members of
your Committee, in order to elaborate on any of the issues raised
and answer any questions you may have on this subject, before
you conclude your report to government.
26 March 1999
10 Not printed. Back