The estimate comes from Association of Mortgage Intermediaries director Chris Cummings, who says: “Mortgage intermediaries should be aware the protection market is very big. There is every reason to get on the bandwagon. “Protection is a very important secondary activity. It should not be thought of as selling ASU. What about critical-illness, income protection and even private medical insurance?”A large percentage of the UK population are thought to be risking their homes by not adequately protecting themselves or their families and the AMI says the problem could worsen if fewer brokers offer general insurance products. Society of Mortgage Professionals chief executive Richard Fox says: “I am not only concerned by the number of mortgage brokers who have not signed up but also by the numbers across the board who have not applied to the FSA.” The FSA says by the end of December 2004, 10,212 intermediaries had applied to transact general insurance business, of which 9,870 had been given authorisation. Under an arrangement announced by the Government last month, an intermediary can continue to arrange or sell general insurance on an interim basis provided the regulator has received an application form from the firm by midnight on January 13. Fox says: “This is sending out the wrong message. It sounds like it is all right for some and not others.” Part of the reason for the delay in applications may be mortgage fatigue. M-Day was only 10 weeks ago. Hamptons International Mortgages adviser Jonathan Cornell says: “General insurance regulation is very close to mortgage regulation. It has not had much airplay and has not affected people’s workloads radically.” Cornell also suggests that some mortgage intermediaries may not even realise they need to be regulated for general insurance business. He says: “Most people think general insurance is buildings and contents. Most mortgage brokers selling life insurance still have not grasped that they will not be able to sell this after the 14th.” A further problem facing the industry is the definition of an independent intermediary. The FSA does not provide a definition for general insurance business although it does for mortgage regulation. Intermediaries will have to be very careful when describing their firm to ensure they adhere to the phrase “clear, fair and not misleading”. Intermediaries also have to be aware of their responsibilities when it comes to regulatory reporting. The FSA’s requirement for general insurance is different from that for mortgages, says the AMI. Lenders largely report on sales of mortgage products but for general insurance this burden falls on to the intermediary. The reluctance of some mortgage intermediaries to apply for general insurance regulation may be connected with professional indemnity insurance. Traditionally, mortgage intermediaries have been able to enjoy lower premiums in their relatively low-risk industry. C Hill IFA mortgage expert Gary Humphries says: “There may be some mortgage intermediaries who are not willing to take on general insurance now because of the risks that are carried along with it. I am sure some of the smaller firms could not even think about a hike in their PI.” Cummings believes the Financial Ombudsman Service is expecting more complaints about protection policies sold on the back of mortgages. He says: “Not only do brokers have to make sure the client is properly covered as per their needs, it is no longer enough to talk about ASU. Brokers need to get a clear view of what a client is already covered for as they may only be able to carry a certain amount of protection. You must understand what a client already has got.” Where an intermediary is hesitant to apply for general insurance regulation, what are the options when a client wants to buy a protection policy? The logical answer would be for the intermediary to act as an introducer but there are hidden dangers. Cummings says: “There is a misconception that as an introducer you can pass on leads as an unregulated activity. This is not the case.” The FSA says an introducer is not an exempt person and hence cannot benefit from the exemption to carry on regulated activities in his own right. As a result, an introducer who is not an introducer appointed representative works in the name of his firm or the firm’s appointed representative but does not fall within the scope of the approved persons regime, as he does not as such perform a controlled function. Does ticking the box at the end of a mortgage application for the client to be referred to the insurance arm of a lender qualify as introducing? Mortgage Intelligence managing director Sally Laker says: “This is a can of worms. Is that cast as arranging if the broker ticks the box? Does he need permission?”But Cornell is less concerned about this. He says: “Most mortgage brokers have good relationships with one or more firms of financial advisers and would refer clients to them for protection advice and vice versa.” The advice to mortgage brokers would be to tread carefully. Failure to comply with regulation can involve a heavy fine and even an appearance in front of a magistrate. Brokers need to be sure of what they can and cannot do, ask for advice if they are unsure and should not treat general insurance regulation lightly. Despite the interim period for late applications, the FSA will crack down on those who step out of line.