Time is running out for many London Market brokers, as the costs of regulatory compliance are set to rise as a result of the FCAs new fair value pricing rules, yet many brokers are not aware of how the regulations will affect them. Here we explore the issues and the answers that Novideas technology can provide.
For many brokers in the UK, the costs of regulatory compliance are already significant. Up to one in four of their full-time equivalent staff already work on compliance. Now, with the new pricing rules from the FCA which come into full force on 1st January 2022 those costs are set to rise still further.
Most London Market brokers are aware of the new FCA fair pricing regulations, yet many do not know how these rules will affect them. Worse still, some brokers do not even realise the rules will impact them at all. This is not entirely surprising, given that most of the publicity and messaging surrounding pricing has centred on the personal lines sector.
|” We know some firms are doing the right thing, but with the deadline for implementing our enhanced rules fast approaching, it’s worrying that some may not be ready. “
Sheldon Mills, Executive Director, Supervision, Policy and Competition at the FCA
How the new FCA rules will affect London Market brokers
The new FCA rules affect brokers and insurers, requiring the latter to provide information on most products, including features, target market, and those whom the product is not likely to be suitable for.
For brokers, there are three key aspects of the FCA rules that affect them: firstly, customers need to be offered fair value renewals; secondly, brokers must charge reasonable fees and commissions for what they do; and lastly, brokers need to be able to demonstrate that they have undertaken an annual distribution review.
All London Market brokers selling general insurance products fall under the scope of the new FCA rules and will need to provide evidence relating to all the points above. It is easy to see how the costs of compliance could balloon, as many brokers are still operating with legacy systems and manual paper trail processes.
” The new rules, although seemingly relatively simple, have the potential to snowball into an unmanageable administrative burden for both carriers and intermediaries. ”
Steve Morrell, Head of Regulatory Affairs at the LMA
Novideas broker platform a better way
Fortunately, there is a proven alternative with Novidea. Our next-generation, born-in-the cloud broker platform enables brokers to move on from aged legacy systems, with end-to-end digital MI reporting, and no need for time-consuming and expensive manual processes.
Taking each of the FCAs points in turn, we cover the issues and Novideas answers:
1. Fair value renewals
All firms in the insurance value chain must offer renewal prices that are no higher than the equivalent new business price for that customer through the same sales channel. Brokers are included in this rule, which is set to have a huge impact on the insurance industry, much of which has lived off dual pricing.
With Novideas platform, brokers are able to automatically gather evidence of the activities they have undertaken at renewal to deliver fair value to the customer, including both time on spent sourcing renewal quotations and handling negotiations with insurers to get the optimum deal available.
2. Reasonable fees and commissions
The FCA says brokers should not receive a level of remuneration that does not bear a reasonable relationship to the firms actual costs, contribution, level of involvement, or the benefit added by them. This will be hugely onerous for brokers and if a broker cannot prove what it costs them to offer a product or prove that the product offers value to their customer, the FCA may intervene.
|According to the FCA, brokers should not receive remuneration that does not bear a reasonable relationship to the actual cost, contribution, level of involvement, or the benefit added by them.|
Novideas broker platform automatically records every action that brokers undertake on behalf of their customers, e.g. customer-related meetings, insurer negotiations, claims activities, and even MTAs, which are all logged against a customers account and even policy by policy.
This in-built advanced MI reporting capability allows brokers to quantify profitability out of the box, providing ammunition to justify their remuneration by evidencing the time and effort spent on servicing customer needs, thus demonstrating that reasonable fees and commissions have been charged.
Whats more, because brokers can provide fact-based evidence of all of their activities and costs, they are in a position to negotiate increased fees with customers, where appropriate and justified.
|Not only can our next-generation broker platform help with FCA compliance, it also enables brokers to negotiate increased fees, where appropriate and justified.|
3. Annual distribution review
With the new rules, brokers need to ensure that every policy offers good value for their customers, with an annual distribution review, covering all elements of the value chain, including delegated authorities, binders, or facilities.
With Novideas platform, brokers can audit all of these channels in real-time, enabling them to assess and report on the fairness of commissions, set fees for administration or demonstrate that they have indeed undertaken an annual distribution review.
Fast, effective FCA compliance
In summary, the new FCA rules are going to be onerous for the whole insurance industry, but particularly for brokers who are still operating on aged legacy systems where gathering the required data will be hugely time-consuming and costly.
By moving to Novideas platform, brokers not only benefit from technology that enables them to quickly, easily, and cost-effectively comply with the new FCA rules, they also benefit from automated processes, reduced re-keying, and the huge cost-efficiencies that this delivers a win-win for brokers.
Contact us for more information on how Novidea can help you comply with the FCA regulations, and so much more. for more information on how Novidea can help you comply with the FCA regulations, and so much more.