UK Insurance Regulation Is Changing The Face Of The Market
In 2005, two years before the credit crunch, the British government imposed far reaching financial and structural controls over the UK Insurance Market by bringing the sale of General Insurance into the controlling hands of the Financial Services Authority, the FSA. Legal regulation and authorisation for the first time of the sale of UK personal lines and commercial risks.
Anyone large or small who wishes to market and sell the majority of insurance products in the UK must be authorised and regulated by this very large Quango.
Prior to this the UK Insurance industry was self regulated through professional bodies. Five years on, what has this meant to the way we buy Insurance as consumers in the UK?
The regulation has certainly had a large impact on the available distribution channels, with a contracting market and barriers to entry.
Although regulation came into force during a period of Insurance broker consolidation and aggregation coupled with skewed figures due to new entrants from the Internet, it appears that our old friend the high street broker is the one to have suffered the most.
The problem with metropolis style regulation is that there is no point having it unless you have enforcement.
The UK Insurance Industry likes to use the nice word compliance as a synonym for the cost.
This has breed a whle new industry in itself, outside of the additional thousands of pen pushing bureaucrats in the FSA.
Compliance, generating a whole new industry and wealth base....the compliance officer or consultant.
The problem is ... it hasn't generated any wealth has it?
Where's the money for all this compliance come from?
Out of the pockets of the Insurance companies involved!
And where do you think that money is going to be retrieved from?
Quite Right! Higher Insurance Premiums for me and You!
So what we initially thought might be a boring insurance story has turned out to be very intriguing.
What's happening in the world of compliance and Insurance Brokers?
we thought we'd catch up...........
Insurance Blogger Kris Oldland Reports...
Regulation and Compliance: FSA Fees a “burden on smaller firms” Says Institute of Insurance Brokers’s Bradshaw
I imagine that there are no small amount of insurance brokers out there at the moment wondering what on earth they have done to upset the financial authorities so much.
First we see her majesties wonderfully efficient revenue and customs chaps getting it completely wrong with Insurance Premium Tax and piling unnecessary and unwarranted taxation on the broking sector. Probably too busy trying to doubling erroneous tax bills to pay to much attention to what the role of the humble broker is.
But like the pantomime baddy that tries to steal every scene in the show in wade the FSA to show these clowns in the HMRC that when it comes to completely missing the point and costing brokers a lot of time, money and emotions – they have the market cornered by proposing a minimum regulatory fee of £1,000.
As they have done so many times before they really seem to have tried so hard to do the right thing but somehow just managed to get it so wrong. The move to review the fees and levies structure is the correct thing to do, but it needs done in a considered and intelligent manner.
When will the FSA understand that sometimes a one size fits all approach to all things financial just doesn’t work. Sometimes that square peg just won’t fit into that round hole – no matter how hard you smash it with that sledge hammer.
Well they’re in trouble now because Barbara Bradshaw, chief exec of the IIB and defender of the humble broker has the FSA in her sights. For the record I think that Barbara is a wonderful and very likeable lady, that said I wouldn’t like to get on the wrong side of her either, she is also a very powerful and determined lady who strikes me as being able to achieve anything she puts her mind to.
Referring to the proposed minimum fee as ‘totally disproportionate’ Bradshaw went on to comment that the fees were likely to become a major ‘burden for the smaller firms’
She added “While we welcomed the FSA's commitment to review the fees and levies structure, we're nevertheless concerned that the proposals really do penalise the smaller broker. The FSA's proposed fee structure means many smaller brokers could face up to a 200% increase."
Showing a complete lack of understanding for the complexities of the broking community as well as fundamental disregard for the smaller brokerages the FSA have claimed in their consultation document ‘Regulatory fees and levies: policy proposals for 2010/11’ that "These proposals simplify and significantly increase transparency as it is clear what the minimum fee covers and why”
The document goes on to later state that the new system will “be fairer as the basis for calculating it will be the same for all firms." Again they are so close to getting it right aren’t they? Again the theory behind it sounds like it is ticking all the right boxes but the delivery is just far too heavy handed.
The biggest worry is if we get rid of this incompetent lot, who are on earth are we going to get to replace them? Part of me would say that its better the devil you know. Perhaps if they just started listening to people like Barbara, Eric Galbraith or even god forbid a few insurance brokers, they may actually be able to make the leap from having good ideas to actually doing some good? But can we afford to give them the time to learn from there mistakes when their mistakes are costing us so dearly?
UK Insurance Mergers & Acquisitions: Could HSBC sale see Marsh and Aon on par again in 2010?
As 2010 warms up Insurance Blog has let resident Insurance journalist Kris Oldland give his UK Insurance insiders view as he plays Nostradamus with HSBC Insurance Brokers.....
In a year that has seen considerably less Insurance Mergers & Acquisitions activity than we had become accustomed to in the latter half of the noughties, the UK Insurance press at large has seemed occasionally a little desperate for gossip. So when one company keeps returning to the forefront of the latest trade press pages we can’t be blamed for thinking that we may have heard it all before…
However there is a certain persistence in the continuing rumors that Marsh are intent on purchasing HSBC Insurance Brokers to make me think that there could be just the tiniest hint of truth behind all this.
Of course from a strategic point of view it would make absolute sense for Marsh to make a bid also.
The market speculation is that Marsh has offered to buy the bank’s broking arm, HSBC Insurance Brokers. The inference that is being made in somewhat hushed tones however, is that this is all just part of a wider strategy by Marsh to get the banking giants on side. The long-term aim it is suggested is then to broker an affinity deal with the bank.
To date both companies have refused to comment on the speculation despite the rumor being reasonably widespread for some time now.
What is clear though is that a decision of HSBC to sell the division would fit in with plans for a wide reaching shake up of its insurance operations. In the previous financial year the bank disposed of its insurance operations based in Malta, Guernsey and Bermuda. The latter being perhaps the most telling move of all that the bank sees insurance as becoming non-core to their overall strategies.
Then as if further re-enforcing this position HSBC Insurance made the announcement that it was to cease underwriting motor insurance completely, swiftly putting HSBC Insurance (UK), its UK motor insurance vehicle into run-off.
It was at this time - when HSBC made the announcement that the corporate strategy was now to be focusing on pensions, investments business and life insurance and moving away from (motor) underwriting in the UK, that tongues really started to wag regarding the other insurance elements.
Various suitors have been referred to in the insurance press ever since, however for me, the fact that through this one acquisition Marsh could make a serious dent in the gap between themselves and their largest and oldest rival, super broker Aon (who of course pulled a similar trick last year when they bought Benfield) would suggest there is more than idle gossip involved here.
Based on the figures produced by IMAS corporate advisors earlier this quarter, the gap between these two giants of the broking sector is currently at £214m. HSBC Insurance Brokers are currently ranked ninth in the UK and should there revenue of £146m come under Marsh control then the gap between Aon and Marsh would come down to a rather more competitive £68m. What this would mean for the rest of the UK Insurance Brokers market is a topic for another article entirely though!
So for Marsh the attraction of picking up HSBC Insurance Brokers, especially from a parent company who appear keen to exit this sector, could be a little to tempting to resist? Well add into this mix the fact that the current CEO of HSBC Insurance Brokers, Phillip Gregory is an ex Marsh man. (CEO Europe, Middle East and Africa)
So with a tailored made CEO to oil the process of transition, should the question perhaps be when rather than if this deal is going to go through?
Well I’m not one to gossip but….
Interesting analysis Kris!
We'll keep you posted here of any developments.
Selling Your Insurance Broker Business? There's never been a better time to sell!
Selling Your Insurance Business? Despite the recession there's never been a better time for selling your insurance business with demand and consequently prices high. Agglomeration of books of business and size are still driving factors when it comes to negotiating commission levels with the big Insurance companies. It's also sale time in the overstretched re-imnsurance sector at the moment!
Kris Oldland looks at the options for Insurance Brokers in the UK who might be thinking of selling their businesses...
The Most Important Deal of Your Life
You have spent the majority of your adult life working hard and slowly nurturing your company to a position of strength. Your reputation as an honest and efficient business person is a proud reflection on your work and the fact that many of your long standing clients are now trusted friends is testament to this. So how do you put a price on your life's work and can you really walk away knowing that the business will be in safe hands?
When considering selling, it is vital that you establish a clear cut succession plan to ensure that you receive the correct financial reward for your career's work. It will take time and careful consideration to find the option that works best for you and there are plenty of questions to be raised before you choose which path is best for you.
In practice there are six main options for those looking to pass on or sell their business. Of course each situation is different and often a compromise between these will be required. However as a general rule at least one of the following scenarios will fit with most acquisitions within the broking sector.
Possibly the simplest option is to persuade your fellow directors to buy you out. This can often be agreed quickly and without too many problems as you are dealing with people whose trust and understanding you have gained over the years. The integrity of the business remaining unaffected and the lack of disturbance on your client base and staff are also great advantages. However, this form of buy out is dependant on finance being readily available to the remaining members of the board so it is not always viable.
Alternately an individual could sell their shares to an external third party. There is some risk in this as the wrong person coming in could cause difficulties with the remaining shareholders. The flip side however, is that if the right person comes on board then they can add an injection of new ideas and fresh life into the business propelling it forwards.
A long term strategy is to train an existing employee with a view to taking over the reins. This offers the prospect of instilling your existing values into the next generation of your company and goes some way to ensuring a legacy; however the obvious pitfall is the realisation of capital. Unless your protege has substantial personal wealth or you are a very generous employer, will they have the funds necessary to step in and buy you out when the time comes?
If all shareholders are in agreement then selling up to another firm is a common choice, but how will working under a new regime impact upon those that stay on? Can those members of the board that stay adapt to less business-critical roles so easily? Without the full backing of all the shareholders a successful deal cannot be agreed so negotiations need to reflect the needs of those who will remain as much as those who are looking to leave.
The final option is to face up to facts that liquidation may bring in more revenue than selling the company as a going concern. If the business is turning over just enough to stay afloat but retention rates are not sufficient enough to attract a reasonable offer, it may be that the equity tied up in assets such as cars or property may be more profitable sold on their own. Again the decision to wind the company down is one not to be taken lightly as the welfare of your staff also enters the equation once again.
Ultimately you need to think carefully about the exit strategy that fits with your own thinking and how you wish to see the business develop once your gone. The most desirable strategy may not be available to you and of course market conditions and levels of third party interest is always going to feature highly in how you leave your business and the value you are able to realise for it.
For any seller, it is essential to find a suitor that you are comfortable with so you can be confident that the new corporate culture will sit well with the way business has been run traditionally. It may be the last deal you make, but be prepared to do some serious work on this one as quite simply; it is the most important deal of your life.
LARGE DEMAND FOR INSURANCE BROKERAGES IN THE SOUTH EAST
If you’re a insurance broker or agent in the City, Home Counties, Sussex, South East or South West England........ Then now is the time to sell.
The demand for brokerages and books of business has never been so good. Whether it be the cash rich regionals who are looking to grow or extend their regional capabilities or brokers looking to extend their strategic position or simply to purchase quality accounts and schemes to bolster their ever growing books of business, the demand is enormous.
The huge demand for brokers in these regions leave the price of selling at a stable position. Yes, there are always people looking for a bargain and using the present credit crunch to squeeze the price down, but the demand for quality accounts has never been so good.
A good quality book of commercial insurance business or high net personal lines in the required sector is always worth selling.
At the end of last year we saw a slow down in businesses for sale. Why? The buyers were still there? Just not the very few larger organisations who decided to close their doors to acquiring. Regional brokers and UK brokers who had structured their businesses well were still trading and still looking to acquire and still are.
We have also seen more businesses looking for schemes and blocks of specific business eg property owners, marine, credit,hauliers.
We have also seen the increase of more overseas companies looking for uk brokerages to place their uk clients and to extend their insurance market relationships. These work very well for brokers who need to take the business to the next stage but do not have the investment to do that. Their everyday job can remain stable, although on a wider basis and normally part of something larger.
At the end of the day if you have decided that you do not want to be in the industry anymore, then selling is your best option.
There is no price for the freedom of doing something that you want to do.
For a free service if you are considering selling visit Insurance Broker Sellers or speak directly with Chris Coates on 07801 329242
Transport, Marine Insurance and Marine Cargo Insurance
Transport, Marine Insurance and Marine Cargo Insurance - The Oldest Profession By Insurance Blogger Paul Magus
Insurance brokers were already an established feature of the London Commercial and Finance scene by the time of Queen Anne. At the beginning of the Eighteenth Century Stuart and Hanoverian England controlled most of the trade runs around the Globe and the British Empire was in its early heyday.
Insurance Brokers came into existence because the marine insurance of ships (hulls and cargoes) emerged slowly as the part-time occupation of a large and disorganised group of private individuals, some with specialised knowledge such as merchants, ship owners and bankers, but including a wide range of people whose only common characteristic was that they had capital to speculate and large profits were available for risk seekers during these enterprising times of discovery. The first insurance broker was a Marine insurance broker and came into being as a response to a need at the time.
This miscellaneous group of individuals included, at one time or another, such diverse figures as Samuel Pepys, the Admiralty civil servant and famous diarist, and Daniel Defoe, the celebrated journalist and novelist, but no doubt there were hundreds if not thousands of others who, in the gambling spirit of the age, were willing to put their signature to, that is to underwrite, a list of people sharing a risk.
Because of the hazardous nature of marine insurance, no one would gamble more than a fraction of his (or her) fortune on any particular vessel, and so someone had to run round the City to assemble a list of names to provide cover for each of the ships leaving port, the so called Lloyds List provided by an early bookies runner.
As Gibb writes in his Lloyds of London, the brokers were the fixed point in a floating market.
It was they who were the professionals, the full-time men who depended on insurance for their daily work and livelihoods, who kept recognised offices, knew the responsible underwriters and, through long experience, were best informed on the nature of marine risk.
Over the next 300 years of so until the present day, the evolution of insurance broking saw many ups and downs, but was characterised by three outstanding features: the growth, diversification and, most recently, amalgamation of insurance broker firms. Insurance products themselves have followed the insurance broker evolutionary path and likewise responded to the needs of the times.
How Mr Pepys would marvel at the way Insurance is now transacted everywhere across the Internet. Marine Insurance is readily available online today for global cover and risks and can as easily be obtained by the small boat owner seeking boat insurance cover as the large shipping magnate looking for cruise ship insurance. Equally available, Freight Forwarders Insurance and Marine Cargo Insurance advice, risk information and quotes can also now easily be obtained online, as can tracking the progress of shipments.
Small Insurance Brokers such as you might still find on your local high street are under further threat as the banks and building societies collapse the Institute of Insurance Brokers has warned.
The Association of British Insurers is reported to be furious with the way that the nationalisation of the Bradford & Bingley debt has been handled which has left UK Insurance Companies having to foot the bill of £14 billion to cover any losses under the FSA controlled Financial Services Compensation Scheme (FSCS).
If the FSCS has to pay out more than 1.84 billion per year then insurance brokers and intermediaries will be asked to contribute more to the fund, to which they already pay a substantial amount each year in order to trade. This could well lead to more small insurance businesses going under - especially as we have not yet seen the last of the big fallers in the Global finance world.
This weekend the Belgium Government was trying to sort out another rescue package for troubled insurance company Fortis who have already received an 11.2 billion input from the Benelux governments. Fortis incidently had a large affinity scheme with Bradford and Bingley. Two other companies heavily involved with B&B were Zurich and Norwich Union.
Massive Demand for Insurance Brokers to Sell or Merge
Leaving the current economic crisis to one side, there is more pressure on Insurance Brokers and IFA's than ever to sell their businesses as it it reported that books of insurance business are exchanging hands for up to four times their value.
Anne Malone - Insurance Broker Mergers and Acquisitions Director at Insuretec Ltd. who have been introducing buyers and sellers for over fifteen years, told Insuranceblog.
"We are seeing books of business and complete brokerages selling at up to four times their value. This is double what you could expect if your were selling your brokerage a year ago! There is a very strong demand for insurance brokers in the Home Counties. Particularly good books of medium sized business could go for even more as the Buyers compete. Recently we have also experienced seven and eight figure amounts being paid for established online insurance businesses as the Buyers try to cover every distribution channel"
The credit crunch appears to have had little effect upon the voracity of buyers to consume their smaller counterparts - if anything the opposite effect is seen.
There are some very large warchests out there as the larger businesses grow through acquisition.
Perhaps unlike houses - Now is the time to sell your business In racing parlance - the going has never been so good!
HBOS & LLoyds TSB merger sees Insurance brands disappear
Those who like to see agglomeration in an Insurance Industry dominated by 'Bancassureurs' will no doubt be pleased by the latest merger.
According to the HBOS website 'Over 7 million customers rely on our household, travel, repayment, health and pet insurance. Our business already generates over £1.7 billion premium income and nearly £½ billion profits – and we’re growing very fast. '
(Maybe they haven't updated the site yet)
Yes very fast and note the amount of profits! Insurance blogger sees no benefits of this merger to the general public - there will just be less outlets selling less brands or versions of the same offering which are usually overloaded with commisssion profit!
Our advice to those seven million new LloydsTSB customers (and the existing ones) is - shop around on the internet - save money! Apathy costs! Alternatively get one of those good old fashioned insurance brokers to do it for you - at least that way you'll be properly covered and not paying over the odds for all your insurance needs!
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