Consultant Garry Heath says the onset of FSA regulation of protection intermediaries will bring a wide range of potential problems affecting brokers, providers and the ombudsman.
In a speech at an industry conference, Developing Next Generation Protection & Health Insurance Products, in London this week, Heath issues a stark warning, telling the industry to prepare itself for several unforeseen consequences of FSA regulation.
He says the protection market is dominated by brokers who have spent their careers avoiding regulation and now that the last bastion of non-regulated business is set to disappear, they may pack it in to “become double-glazing salesmen”.
Heath, who is chairman of consultancy Special Risks Bureau, says this will result in severe difficulties for providers, as many have paid up-front indemnity commission to brokers and will struggle to recoup it. If there is a significant exodus of brokers, they could find it hard to maintain current distribution levels, he says.
The Financial Ombudsman will have no choice but to rule in favour of consumers in the majority of complaints, says Heath, because many brokers have no history of maintaining adequate records. If the FOS were to apply lighter standards to the firms newly falling under its scheme, it would be castigated by consumer groups.
Heath says: “A lot of these firms have done their best to avoid regulation. Now that they have no choice, they might choose to pack it in instead. The introduction of regulation will be particularly difficult for brokers not used to the standards that IFAs operate by.”
Bright Grey product director Roger Edwards says: “I do not believe that the regulatory regime that is to be imposed on these people is going to be as onerous as he is describing.”