As you will hopefully be aware, RWA has issued various commentaries on the need to undertake robust due diligence on the insurers that you recommend, particularly where using unrated or overseas insurers.
The FCA has now updated their web pages on this point: https://www.fca.org.uk/firms/insurance-brokers-due-diligence-insurers
The recent failures at Alpha Insurance A/S, Enterprise and Gable clearly demonstrate the problems caused to consumers and the wider market, with around 1 million customers needing to find alternative insurance cover. Remember, ensuring relevant markets work well and that consumers receive an appropriate degree of protection are key operational objectives for the FCA. The FCA expects all insurance brokers to play a key role in ensuring that this objective is met.
The FCA has given some examples of what an insurance broker needs to consider as part of their insurer due diligence. This is not an exhaustive list and it is for each insurance broker to determine what due diligence is appropriate in each case:
- Insurers' Solvency and Financial Condition Report: A key figure and indicator is the solvency coverage percentage.
- FCA and Financial Ombudsman Service (FOS) complaints data: This will give an indication on how insurers treat their customers.
- Audited accounts of insurers: UK company accounts are filed at Companies House, but there may not be an equivalent for overseas firms. If the accounts are not available, ask yourself whether you are comfortable doing business with them.
- FCA Register: Check if the insurer has passported in on a branch or a services basis. UK firms and firms passporting in on a branch basis are automatically covered by FOS. Firms passporting on a services basis can elect to come under the Voluntary Jurisdiction of the FOS. Check if your firm is covered by FOS. If not, check if there is a dispute resolution scheme in the home state, and whether UK customers are eligible.
The FCA expectation is quite clear in that they expect the insurance broker to give full information to a client and where using weaker insurers, that should include a clear warning as to any risks to the client.
The FCA will be looking at this whole area in greater detail over the forthcoming months and we have seen PI insurers also taking a significant interest and requesting details of your letters and scripts giving the appropriate detail/warnings as well as due diligence undertaken.
RWA has recently launched an AVIVA Development Zone module, 'Weaker Insurers and Insurance Broking' and we recommend all insurance brokers undertake this module and then review their processes and documentation.
The FCA will be expecting all brokers to meet their expectations, so please do not be the one to be caught out.