GI compliance costing brokers dearly
According to the survey general insurance brokers have seen their compliance teams multiply in the past two years to cope with the demands of GI regulation.
The survey of 96 leading UK insurance provider and intermediary firms found that insurers have seen their compliance costs rise by a quarter to cope with GI regulation which comes into force on January 14th, while they expect their ongoing costs post GI-Day to be 39% higher. Brokers believe their costs will be on average 87% higher post GI-Day and have seen their compliance costs double to cope with the rigours of regulation.
In the past two years the size of companies’ compliance teams has increased dramatically, with the average broker compliance teams having tripled in size. Two thirds of UK insurers have had to second people from other functions within the company to cope with the demands of regulation. 69% of larger intermediaries have had to second staff in comparison to just 34% of smaller companies. Over half (55%) of employees in intermediary firms have been directly involved with GI-Day preparation while 67% of providers’ senior management teams have been directly involved with the regulatory process.
Andrew Wheeler, Senior Consultant at Huntswood’s consulting practice, commented: “The level of resource that both insurers and brokers are committing to GI-Day compliance is phenomenal and will keep on growing. It’s clearly been a huge distraction from many firms’ core business, at an extremely competitive time in the sector. While none of these firms can go back now and do things differently, they should review how to remain within the rules without further damage to the bottom line by bringing in expert help.”
According to Huntswood’s survey, insurers categorically believe that regulation will have a beneficial affect on the industry, while a third of brokers do not believe that regulation is necessary at all.
The survey also reveals that the majority of companies are taking a ‘belt and braces’ approach to regulatory risk management. 90% of insurers are taking the view that the best way of dealing with regulation is to eradicate any possibility of risk by enforcing rigid and comprehensive checks and controls across the business rather than recognising that there needs to be a balance in order to reduce impact on profitability.
Insurers believe that out of the new regime requirements, product disclosure will have the greatest impact on them. In comparison brokers believe that the requirements of training and competence and record-keeping will have the greatest impact.
Wheeler concluded, “It’s clear that most insurers and brokers are imposing extremely stringent processes to meet the demands of GI regulation, but there is of course an advantage for those firms with focused risk management who play by the rules most cost-effectively. Firms need to avoid over-engineering their compliance processes and thus creating too much drain on their core activity and profitability. More onerous risk management and data capture systems may be required initially which can be reconfigured once firms have developed their understanding of the regulatory risks they face.”