The Financial Conduct Authority (FCA) has concluded its investigation into the London wholesale broker market, finding no evidence of competition concerns in the sector.
The UK financial regulatory body launched its study in November 2017 to assess how effectively competition is working in the wholesale broker market.
“Overall, the FCA has not found evidence of significant levels of harm that merit the introduction of intrusive remedies,” the Authority stated in its latest and final report.
However, the investigation did identify some areas where there is scope for improvement, including how firms manage conflict of interest, the information they disclose to clients, and contractual agreements between brokers and insurers that have the potential to limit competition.
“This was a significant and in-depth analysis of a sizeable and complex market to determine whether clients were at risk of harm,” said Christopher Woolard, FCA Executive Director of Strategy and Competition.
“Encouragingly, we found no evidence that they were but we found some areas with scope for improvement and we will work with the industry to ensure these are addressed,” he explained. “We would like to thank the firms and industry groups who participated in the study.”
The study’s findings were based on analysis that included responses to a questionnaire from 73 brokers and 49 underwriters, which looked at market features including conflicts of interest management, market shares and entry/exit.
The FCA, which operates independently of the UK Government, engaged with a number of market participants throughout the study, including brokers, underwriters and UK and international industry bodies.
Christopher Croft, Chief Executive Officer of the London and International Insurance Brokers’ Association (LIIBA), welcomed the conclusions of the FCA report.
He stated: “This study has been in-depth and wide ranging and our members, and other parts of the insurance market, have co-operated closely with the FCA in this detailed look at our industry. It has looked at all aspects of the way business is placed and it would be fair to say has given intermediaries a clean bill of health.”
“Our position has always been that customers are benefitting from broader coverage than ever before, on high quality paper at historically low prices – this is the best possible outcome for them in the risk transfer process,” Croft continued. “This study offers strong evidence to back that view across all aspects of the value chain.
“The fact that this is the final report – a first for the FCA, brings an end to this piece of work and the FCA will take up any concerns with individual firms in the normal course of its regulatory processes. Liiba will continue to work closely with the FCA to ensure a proportionate approach to the regulation of our market.”
Steve White, CEO of the British Insurance Brokers’ Association (BIBA), also commented: “The fact that the FCA closed this assessment at an unprecedented early stage is a welcome step and validates our view that the wholesale insurance market is a highly competitive place. It is also welcome that the FCA intends to deal with any follow up matters on a business as usual supervisory-led basis.”
“There are many positives in the report and our members will be pleased to see that the regulator recognises that the sector meets client demands successfully,” White added.
“We have regularly asserted that this sector provides customers with broad cover, competitive premiums quality paper and a full range of services that clients appreciate. The positive nature of this report reinforces this.”
The Lloyd’s Market Association (LMA) has also welcomed the findings of the FCA’s review, with the organisation’s CEO, Sheila Cameron, saying: “We are actively pursuing technological advancements such as PPL which should increase market efficiency and allow us to continue to provide complex and comprehensive insurance solutions, together with world-leading claims handling, at the most competitive rates for our policyholders.
“We are supportive of the FCA’s proposal to address specific instances of conflicts of interests, or anti-competitive contractual agreements or practices. As we stated in our response to the FCA’s terms of reference for the study, we support full disclosure of remuneration by brokers to their clients and we will work with the FCA to ensure that the Lloyd’s market remains the world’s leading specialist insurance hub with sustainable broker/insurer dynamics.”
