the magazine of the british insurance brokers’ association … · 2015. 12. 23. · material, we...

the magazine of the British Insurance Brokers’ AssociationWinter 2005 Issue 23

thebroker

Please circulate to:

Name:

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Please write in key employeesin the spaces above

Capital challengeAccessing funds for growth

Commissioncontroversy:a UK perspective

NorwichUnion’sGeorge Berrie:his broker strategy

Offshoremarkets:dangerous waters?

BIBA – Leading the way in UK insurance

Property: we’ve got it covered.

Norwich Union Insurance Limited. Registered in England No. 99122. Registered Office: 8 Surrey Street, Norwich NR1 3NG. An Aviva company. Authorised and regulated by the Financial Services Authority. Issued for use by insurance intermediaries only. This promotion has not been approved for use with customers.

Trading together

Time to renew your customers’ Property Owners cover? Make life simple. Go straight to Norwich Union for:

• Extensive cover for all sizes of commercial and residential portfolios

• Consistent trading and underwritingcommitment throughout the market cycle

• Property Insurance Management system for fast, efficient administration of insuranceportfolios enabling you to deliver greatservice to your customers

• Wide range of additional covers so you cantailor a package to fit your customer’s needs.

For details, contact your local Norwich Union branch or visit www.norwich-union.co.uk/ebroking

CNPR236-DEC05

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CONTENTS

the broker winter 2005 03

19 Insurer securityPlacing business offshore canbe dangerous, as the case ofArab German Insuranceshows. Jon Guy reports

Management

22 Your businessAdvice on new agediscrimination legislation, howto set up an email policy andan update on imarket

25 TrainingIan Jerrum of SearchlightSolutions on training plans, with tips from Terence Clark of CommunityBroking Group

27 Schemes focusProduct and supplierinformation based on BIBA’sschemes and facilities

30 Technical briefingTax and VAT matters simplifiedby Andrew Green of Mazars

33 Compliance Steve White provides aregulatory update

34 Question timeIn-house experts at BIBAanswer your technical queries

Regulars

04 ViewpointCutting-edge comment fromchief executive Eric Galbraith

05 News and viewsThe latest news from BIBAincluding conference update.Plus, RSA’s Brendan McManusstarts our Right to Reply column

07 Around the regionsWhat’s happening at grassroots level

08 Media watchBIBA campaigns are in the news,plus briefing from columnistChristine Seib of The Times

Analysis

10 InterviewIntermediary director GeorgeBerrie talks to Rachel Gordonabout his new role

12 Venture capital With more brokers looking toraise funds, Jane Bernsteinasks is this the route to take?

16 Broker remunerationControversy over commissionrumbles on, but StephanieSpicer questions if it is time toshut the door on Spitzer

I hope you like the new look and content we’vecreated for the broker. We’ve made a number ofchanges to make it a more stimulating read,

covering some hot topics in this issue, such as remuneration,insurer security and venture capital.

We’ve also introduced a number of new regular features – regional news covering local updates and events; Media Watch, which looks at thestories in the trade and national press; Your Business, which examinesmatters such as HR and the latest legislation; and Question Time, which

gives you the chance to put your questions forward toour in-house experts.

To help you to circulate the contents to everyone inyour firm, we have also created an interactive PDFversion on our website that you can circulate to your staff– visit www.biba.org.uk

Have a read of the brokerand tell us what you think. Iknow that you have limited time to spend reading themany trade publications in our industry – so I’dappreciate your feedback. When it comes to readingmaterial, we want the broker to be top of the pile!

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BIBA contactsEric GalbraithChief Executive020 7397 [email protected]

Peter StaddonHead of Technical Services020 7397 [email protected]

Graeme TrudgillTechnical Services Manager020 7397 [email protected]

Paul GarlandMembership Manager07808 [email protected]

Steve WhiteHead of Compliance and Training020 7397 [email protected]

Doreen CampbellOffice Manager020 7397 [email protected]

Lindsay CampbellExecutive Assistant020 7397 [email protected]

Leighann BurtrandCommunications Co-ordinator020 7397 [email protected]

Kirsty GordonMembership and Broker ASSESS020 7397 [email protected]

This magazine is about you andfor you – so we do rely on yourcontributions. Please contactLeighann Burtrand with yournews and views. Her details arein the contact list above.

BIBA House, 14 Bevis Marks,London EC3A 7NT

Design: Citigate PublishingPrint: SMPAdvertising: Mainline media

Whilst every care has been taken in thecompilation of this magazine, errors orommissions are not the responsibility ofthe publishers or editorial staff. ©Allrights reserved. Products and servicesadvertised within the broker do not carryendorsement or recommendation byBIBA. The BIBA logo is added free byrequest to members’ advertisements. Itwarrants or signifies nothing more thanthe advertiser is a member.

COVER IMAGE: MATTHERRING.COM

thebroker

INSIDE WINTER 2005

‘‘’’

Leighann BurtrandEditor of the broker

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Secondary intermediaries – reasons why You may have read in the press that BIBA islooking at allowing secondaryintermediaries into membership. This ison our agenda now and we have a workingparty looking into what shape this couldtake. I expect to make an announcement inthe coming months.

I am mindful some could feel thatallowing secondary intermediaries to joinBIBA would in some way dilute our offeringto existing members. I want to make it clearthat this will never be the case.

We are talking about associatemembership, which would be a distinctcategory under our articles.

We need to think about whatadvantages such a move would bring. Inpractical terms, there are many thousandsof secondary intermediaries legallyentitled to sell cover, who are coveredunder FSA regulation and could benefitfrom the types of services we provide.

We are already working withgovernment, but representing a greaternumber of those who are providinginsurance would give us greater influence.

There is a wide range of suppliers in thesecondary intermediary marketplace – itcould be 12,000-strong. They range fromproperty agents to garages to mortgagebrokers. Those who meet requiredstandards currently may not have any bodyrepresenting their interests as far asgeneral insurance is concerned. On certainkey issues, speaking with one voice makesa lot of sense.

A working party has been set up to lookat all aspects.

Fighting for the level playing fieldWe talk a great deal about the need for alevel playing field within the insurancesector. As brokers, we do not expect specialtreatment, but neither should we besubjected to unfair competition.

BIBA has stated it is concerned about anumber of proposals which have beenpublished in the FSA’s QuarterlyConsultation Paper CP05/14.

This proposes a number of amendments

to the ICOB rules and in particular,removing the status disclosurerequirements for insurers in relation toretail customers. It is also intended toremove the requirement for insurers toprovide a demands and needs statement fornon-advised sales to retail customers.

It is commonsense to me that customersshould know where they are buying theirinsurance from and what the company’sstatus is. Even with a non-advised sale, ademands and needs statement should stillbe provided. We will be campaigning forequal treatment.

We want the FSA instead to see insurerscomply with customer classification, thatconcise policy summaries are provided andthat renewal terms are given in sufficienttime, so that brokers can comply with the21 day rule.

Let us have your feedback – the deadlinefor responses is 7 December.

Brighton on track for 2006 – BIBA Conference 26-28 AprilChristmas isn’t even here yet butpreparations for the 2006 BIBA ConferenceMaking the Difference, are in full swing.

As always, we look forward to

BIBA’s chief executiveEric Galbraith talksto members about theissues that matter

welcoming delegates not only from acrossthe UK but also further afield. After all,this is your industry, your profession, andwith a first class line-up of plenary andseminar speakers, the conferencepromises to provide a wealth of experienceand knowledge to be shared with all firmsfrom the smallest to the largest.

The event offers excellent value,especially to BIBA members. The BIBABursary, introduced four years ago, offerscomplimentary registration for up to amaximum of two delegates per membercompany. In addition, member firms areentitled to two complimentary FutureBroker delegate registrations for staffunder the age of 35 and furthercomplimentary registrations are alsoavailable via the corporate sponsoredbroker scheme.

The only thing you need to do isallocate the time to attend the insuranceindustry event of the year and so Iencourage as many brokers andintermediaries as possible to get the datesin their diaries now.

VIEWPOINT

Customers should know where they are buying their insurance from and whatthe company’s status is.‘‘’’

Email Eric Galbraith [email protected]

04 winter 2005 the broker

NEWS AND VIEWS

All for one?I was asked to be controversial in thispiece, so here goes. What if there wereonly one body representing everyone ininsurance?

I realise most reading this are likely to be BIBA members and are rightly proud ofthis association. But, if we can think outside of our own interests, would it not bebetter if we had a united face – at least onthe big issues?

I am thinking largely of areas such aspromoting insurance as a career and in theway we reach consumers.

Many people distrustinsurers, but we could dofar more to promote thepositive aspects of ourindustry if we workedtogether. If there is a legalor medical issue, the LawSociety or British MedicalAssociation represents theprofession – withinsurance, we too oftenhave different messagescoming out.

We’ve been accused ofbeing inward looking and of not puttingconsumers first. This may be unfair, but mudsticks. When speaking to government too, itmakes far more sense if the whole industryacts together on major issues – ourlobbying has lacked firepower in the pastand many of us want to see us campaigningharder on key issues.

Few need reminding that, as an industry,we are suffering from a shortage of goodpeople. Are there ways we can worktogether to let people know about thefantastic careers available in insurance?

When we have virtually full employment,we need to compete hard and we’re stilloverlooked by many bright graduates andcollege leavers.

The Chartered Insurance Institute hasdone well in founding the Faculties ofBroking and Claims and BIBA has made real progress in working more closely with the Institute and the Association ofBritish Insurers.

But, what else can be done? Are thereways we could work closer together? I’d beinterested to hear what you think.Brendan McManus is Royal & SunAlliance’sdirector of UK Commercial

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Olympic hero Coe toopen BIBA conference

Brendan McManus

Do you agree with Brendan? Let usknow what you think. Email the editor

Leighann Burtrand at [email protected]


This year’s BIBA conferencetheme is Making the Differencewhich has been chosen to reflectthe influence the broker channelhas on the insurance market. Theevent takes place on 26-28 April atthe Hilton Metropole in Brighton.

Mr Galbraith says: “Brokers aredaily making a difference to theircustomers’ businesses:anticipating trends, understandingthe risks, offering choice,extending the cover, solvingproblems and reducing cost for thevast majority of UK businesseswho trust their broker for expertadvice and unbiased opinion.”

Mr Galbraith adds: “The BIBAconference gets bigger and betterevery year, and the 2006conference is expected to continuethe recent trend of dramaticgrowth in delegate numbers and inexhibition and sponsorshipsupport. There is no otherinsurance event quite like it. It’s byfar and away the largest event inthe insurance calendar, anunmissable networking andmeeting point for brokers,underwriters and for all those whocontribute to the success of thebroking channel.”

The latest updates on the BIBAconference can be accessed via theorganiser’s website at www.campaignpartners.co.uk/biba

Lord Coe will open next year’sBIBA conference in Brightonwhere he will speak on how hehelped London win the 2012Olympic bid.

Eric Galbraith, BIBA’s chiefexecutive, comments: “He inspiredthe International OlympicCommittee with his vision of thelegacy the London games willleave for future generations and wethink he’s an inspired choice tolaunch our conference.”

One of the greatest athletes ofall time, Lord Coe set 12 worldrecords at four distances. He wonfour gold and three silver medals inEuropean Championships andOlympic Games. He has since builta political and business career.Lord Coe headed the British bidwhich finally triumphed over thefavourites, France, in Singapore.He is widely acknowledged ofhaving played the key role insecuring the winning 2012 bid. Hisachievements were evenrecognised by French newspaperLe Figaro, despite France’s bitterdisappointment at losing.

His presentation will touch on the importance his team placedon supporting athletes,encouraging more young people totake up sport and regenerating arun-down, multi-ethnic region ofthe capital.

Man on a mission: Lord Coe at a bid meeting

NEWS AND VIEWS


BIBA’s online training package– broker ASSESS – has beenupgraded, with Version 2being launched at the recentCII conference.

Following extensive feedbackfrom the user group, Version 2 isnow available on the system,which went live on 3 November.

Enhancements cover five keyareas on the system, which includeupgrades to the knowledgeassessment system (KAS), learningand development log,management reporting,navigation and usability.

The navigation of the systemhas been improved with enhancedgraphics and a new security time-out facility installed which willgive a warning and allow users toreset the time-out counter.

Knowledge assessment system The assessment set up has beenimproved to allow predefined teststo include: • “Must have” questions from a

selected question bank• “Must not have” questions from

a selected question bank• Remaining questions from a

specific question bank to berandomly generated

• Now an email facility withinthe KAS allows administratorsto communicate key

Premium finance companyPremium Credit has beensigned up for a further threeyears as BIBA’s preferredprovider until 2008.

“We’re delighted to announcethat we’re continuing to work withPremium Credit,” says BIBA chiefexecutive Eric Galbraith. “We havea long standing relationship withthe company and brokers can restassured they’ll receive first rateservice and be with the UK’s leadingprovider.”

The agreement means that BIBAwill continue providing itspremium finance scheme for allmembers.

It has facilities for commercialand personal lines and also offers ascheme for members buying theirprofessional indemnity coverthrough the BIBA scheme. “Webelieve we are the only premiumfinance provider to have a specialistPI division and we’re working withthe three approved brokers,Alexander Forbes, Towergate andFirst City,” says developmentmanager Simon Pearce.

Premium Credit is also a BIBApartner member and supports theassociation in the regions and at theconference. It also offers a financescheme for BIBA members wantingto spread their membership fees.This is charged at a low rate ofinterest.

“We have developed a strongrelationship with BIBA over theyears and have been providing theBIBA scheme since 2002,” adds Mr Pearce.

PremiumCreditsecuresBIBA deal

Broker ASSESS moves up a gearKnowledge assessment

system

Learning and

development log

Management reporting

User enhancements

Millennium Insurance Brokers,which is based in Newport,Shropshire, is now holder ofthe e-commerce award,sponsored by the Departmentof Trade and Industry.

Millennium won the best end-to-end integration category in theWest Midlands regional division ofthe awards for its launch, TheTrading Platform.

This was developed by SteveClowes, Millennium’s managingdirector, and Paul Carson,managing director of EastlakeDesigns. The product is anintegrated online trading platform,which is used by over 3,000mortgage brokers across the UK totransact general insurance.

That winning feeling

Millennium’s Steve Clowes and Sue Dimmock receive the award fromsponsor Dr Richard Hutchins, director of Advantage West Midlands

information to employees, such as when an assessment hasbeen created, or communicatewith users who have not yetattempted a companyassessment

Learning anddevelopment log • Administrators are now able to

amend learning time onemployee logs in the case oferrors

• Log reports will show learningoutcomes from the content thathas been accessed

• Documents can be uploadedonto ed. to support learning anddevelopment activity

Management reporting• Re-structure of report layouts

and new titles• Additional information on

usage, such as number of timesaccessed, date of first/last access

• Greater feedback on assessmentperformance – clearer reportingbetween fails and users notattempted

User enhancements• Product-specific home pages with

market news feeds• Software checker with

download instructions• Quicker access to key information

– learning outcomes/topics listedfor each piece of content

The time has long passed since any onetrade body or other stakeholder in thegeneral insurance industry can act insplendid isolation. Nationally, BIBA hasforged closer links with bodies such asthe ABI and CII.

While brokers from across the UK andbeyond attend our annual conference, weare also expanding our regional events.

There are two events taking place by the end of the year, BIBA Wales Day in Cardiff and the Scottish Regional Conferencein Stirling.

Peter Staddon, head of technical services,will be attending the Welsh event, while I willbe going with chief executive Eric Galbraith

to Scotland. These two events are

testament to the hard workput in by our team ofregional executives, whohave made a real differenceto organising local activities.With so many committeemembers being full-timebrokers, having an executiveto support them meansideas turn into reality.

I’d like to remindmembers too that ourregional executives are not

just there to help committees, but individualmembers as well. And if you’re not an activemember, please check out our website to seewhat’s going on.

Our training programme is in the regionstoo. We’ve held courses in most parts of theUK from Plymouth to Belfast and in somecases, members have joined together for acourse and we’ve sent a trainer to them.

On a wider note, broker ASSESS, ouronline training package can reach anyone,anywhere.

Over the last two years, since we teamedup with the CII on a number of initiatives, thecooperation between the two organisationshas been nothing short of remarkable.

It’s an example of how two major industrybodies working together can help set industrystandards. It will lead in the future to suchevents as joint training forums which willdeliver the right kind of affordable training toboth our memberships.

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The inaugural BIBA WestMidlands golf day took placerecently at the BromsgroveGolf Centre with 26 playersrepresenting local brokers,the CII, Premium Credit,Davies Managed Systems andwith guest attendees from theWest Midlands Police.

The winner of the under 14handicap BIBA West MidlandsTrophy was Mark Rogers fromSmart & Cook Insurance Brokers,Ludlow.

He received his trophy – TheMillennium Insurance BrokersCup – from committee chairmanAlan Percival.

The winner of the 14 and overhandicap Millennium Brokers Cupwas Mark Grocott from DaviesManaged Systems.

The day was organised byDavid Tamlyn at MillenniumInsurance while AssurantSolutions sponsored the day.

Details of the 2006 golf day willbe announced shortly.

Mark swings to golfing success

Folgate Warren Hillis quiz championBIBA’s South East regionrecently organised a quiznight, with Folgate Warren Hilltaking the honours.

The winning team comprisedCathie McGuinness, AndrewBishop, Peter Worrell andmanaging director David Perry.

The team from Norwich Unioncame in just one point behind totake second place. Peter Staddon,BIBA's head of technical services,was quiz master and Richard Essexof Marsh compiled the questionsand music rounds.

The event was held at thepopular Grasshopper Inn,Westerham, Kent and wassponsored by CunninghamLindsey.

There were nine teams and thequiz consisted of 11 roundscovering diverse topics such asmusicals, culture and “what’s mynext line”. There were a number ofspot prizes throughout theevening for certain rounds, whichwere presented by Peter. SouthEast regional executive DianeSmyllie organised the event.

Regional executives – contacts

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BIBA REGIONS


Paul GarlandBIBA’s membershipmanager

West of EnglandBarry Blakley07766 235037 (mobile) 01934 834392 (home)[email protected]

Yorkshire andNorthernIan Raper01274 [email protected]

Scotland Clive Hurn 07836 609 [email protected]

South East andCentralDiane Smyllie01959 [email protected]

AngliaJo Morgan01638 [email protected]

Merseyside, West Cheshire,North Wales, Isle of Manand Greater Manchester Bob Nicholls 07831 [email protected]

as one in 10 students will beburgled, this is a false economy.”Daily Mail: ‘Thieving spires – onein 10 students will be burgled atuniversity, adding up to a £34.65million loss, says BIBA’.

Avoid the mobile phonerip-offMobile phones are often coveredby home insurance policies.However, sellers push costlypolicies at point of sale.

BIBA used research to find outhow many people are taking outinsurance when they buy andestablished it’s often a rip-off.

We used the campaign tohighlight the need to buyinsurance where necessary, but tomake sure it is good value.

This caused a stir in the media.Highlights included The FT, DailyMail, Metro, The Independent,Guardian and BBC Radio 1.Financial Times: ‘Consumerscould be wasting more than £100 ayear each by taking out expensivemobile phone insurance on whichthey might not be able to claim’.Daily Mail: ‘Peter Staddon at BIBAsaid phones should be added tohome contents insurance instead,which could cost no more than afew pounds’.

Trade press updatePost Magazine: Reported BIBAhad lent support to two Europeanregulatory campaigns.

These were the EuropeanFederation of InsuranceIntermediaries – also known asBIPAR – to prevent statutoryregulation to ban contingentcommissions.

BIBA also welcomed theEuropean Commission’s decisionto launch proceedings against the10 European Union member statesyet to implement the IMD.Insurance Times: Informedreaders BIBA has relaunched itsclient money tracking protocol,designed to help members adhereto the FSA’s client money rules.

When it comes to insurance,personal finance journalistswant stories with a lively angle which at the same timeshow how to avoid consumerdetriment.

The challenge for BIBA’scommunications team is to pickthe right topic, relate it toinsurance and promote the value ofusing a broker.

Each month, we undertake anumber of PR campaigns,including these:

Keeping students coveredThe campaign was designed tohighlight that students may takevaluable personal possessions backto university, which are oftenuninsured.

Research established the valueof possessions and the number ofstudents affected by burglaries.BIBA used this to emphasise theimportance of insurance when atuniversity.

The campaign took off andcoverage achieved included theDaily Express, Daily Mail and TheScotsman.Daily Express: Peter Staddonsaid: “Some students are tempted tosave money by not insuring theirbelongings, but given that as many

We should expect to see positive pressregarding mid-sized and smaller brokers. A source at the FSA reports that thenumber of brokers still on interimauthorisation is “practically zero”.

The regulator’s recent complaint that theinsurance industry needed to improve thequality of documentary information provided to

customers seemed aimedmore at insurers than brokers,whose clients tend have amore sophisticatedunderstanding of what theyare buying.

And, after sending outteams in the summer toinvestigate whether roguebrokers are selling coverwithout authorisation,whispers from the FSAindicate investigators were

MEDIA WATCH

Christine Seib

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Ghard-pressed to find evidence of transgressions. A report onthe investigation’s findings is due out next month.

National brokers have fared less well, largely as a result ofthe investigation by the New York State attorney general.

But, if we can put a positive spin on it, awareness has beenraised, and in the UK there has been opportunity in the tradepress to show there are no similar problems.

National brokers continue to stand up and be counted. Ina recent lecture to the Insurance Institute of London, Marshchief executive Bruce Carnegie-Brown said brokers mustincrease the value they offer to clients if they are to survive.And, although Aon is making redundancies, new chiefexecutive Greg Case is explaining why the business is beingstreamlined.

Throughout the UK, many brokers are offering their clientsa first-rate service. But, it’s vital that people know this. Don’tlet insurers corner the market in handing out useful advice.

Be proactive, think about what might make a good storyand call your local newspaper, and feed back any successyou have to BIBA.Christine Seib is insurance correspondent at The Times

On the campaign trail


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INTERVIEW

Praise or criticism, whatever brokersthink of Norwich Union, they nowhave a new name to pin it on –George Berrie, who has recentlytaken over from Ken Wallace as theinsurer’s intermediary director.

It is clear he wants to set his ownagenda in the role. Although he refersbriefly to the big send-off which markedMr Wallace’s retirement, and which wasattended by many highly appreciativebrokers, Mr Berrie is keen to focus on howhe sees the market developing.

He has one of the largest and most highprofile jobs in the industry and over theyears, Mr Wallace gained enormousinfluence and was someone not afraid tomince words – including slammingbroker inefficiencies where he saw them.

Mr Berrie, who has been with NorwichUnion for nearly 30 years, has risensteadily through the ranks and is knownas someone who is ambitious and willingto seize opportunities. He does not have amain board position, which wassomething Mr Wallace enjoyed – althoughhe may well hope this is only a matter oftime. So, for now, he has all to play for.

GrowthAlthough Mr Berrie was well known in themarket as director of north regions, henow has responsibility for more than2,000 staff and can expect to be quotedextensively in the trade press as theinsurer’s key individual responsible for

The new intermediarydirector for NorwichUnion gives his viewson the broker marketand his strategy withinthe UK’s largest insurerto Rachel Gordon

WHO IS GEORGE BERRIE? He has been with Norwich Unionfor 27 years. His previous rolesinclude commercial marketingmanager and regional managerfor General Accident, chiefexecutive of New ZealandInsurance and director ofoperations for CGU. Most recentlyhe was director of regionalbusiness (north) for NorwichUnion. As intermediary director,he is responsible for 2,700 staffacross the intermediary businessin the UK. His remit is to growbusiness with intermediariesprofitably and drive change inpursuit of the insurer’s “vision forbrokers in the future”. He liveswith partner Julie and has threechildren – two daughters and ason. His interests include hillwalking, astronomy, keep fit,travel and photography.


George’s big NU role

brokers who are doing well have acommercial focus, but are also able to lookafter these clients’ personal lines as well.”

With so many insurers after a largerslice of the SME market, he explains thatNorwich Union plans to differentiate itselfby offering a more bespoke service forlarger, more complex risks. “We areproviding service for brokers through ourdedicated small business insurancecentres. But, we now want to say to brokersthat should they feel it would be helpful,we will provide face-to-face support ifrequired. This could mean underwriters,claims people or risk managementspecialists devising solutions for clientswhere there is more complexity.”

He adds that Norwich Union hasfocused in recent years on improving itsunderwriting standards and now producesa capability index, which, he says, has adirect impact on the service brokersreceive. “From the moment we receive aquery from a broker we want to know if weare handling it successfully and that ourunderwriters are able to pass on theirincreased knowledge.” And, he says earlypriorities will be to tackle the soft market,which he argues is hitting brokers hard.

OffshoringThe whole issue of offshoring remainscontroversial. But Norwich Union has beena major player in the offshore market,having substantial offices in India and hasstated that up to 20 per cent of itsworkforce could be based there. It alreadyhas 3,700 staff in India and could have up to7,000 jobs overseas by 2007.

Mr Berrie says that only around 100 staffbased offshore are currently dealingdirectly with brokers’ calls, but says there isnothing to say this will not be increased.However, he emphasises that offshoreemployees are not involved in “trading”with brokers and work instead on areassuch as administration, adjustments andrenewals. A small group of brokers wererecently flown out to India to see theoperation in action.

“We have nothing to hide and are proudof what we have there. The staff there workin a highly efficient, paperlessenvironment. They all have degrees and agreat attitude. Brokers who work withthem will find the people very helpful.”

Whether they deal with call centres ornot, Mr Berrie says he believes there will bemore work processed electronically. “I-market is only part of the story. We areseeing more brokers set up their own webtrading capability – they want to bemasters of their own destiny.”

From the moment we receive a query from a brokerwe want to know if we arehandling it successfully.

‘‘’’

developing its broker strategy. Despite concerns over the growth of

Norwich Union Direct – this now sellscommercial insurance and has beenexpanded as a result of the closure of HillHouse Hammond and purchase of the RAC– the broker division remains massive andis worth some £3 billion a year.

DifferentiationA few months ago though, Norwich Uniondumped the panel being used for RAC andrebranded the operation RAC DirectInsurance. Although some business willbe handled by outsourcing intermediary,BDML, much will now be handled byNorwich Union Direct.

He insists that although Norwich UnionDirect offers customers two month’s freecover and other deals, brokers are not harddone by. “Look at the small print and the

offers tend to be linked to add-ons. It is alevel playing field.” Longer term, Mr Berriebelieves the insurer will work with fewerbrokers, and that business will be highervalue.

“We welcome the arrival of the superprovincials; they can bring benefitsbecause of their scale. We look at each dealon its merits; the main thing is that thefinancials have to stack up. No one getsextra commission for nothing.”

He counters this by adding that theinsurer has no plans to terminate agencieswith smaller brokers, pointing that inmany cases, “it is easier for smaller firms tohave close relationships with clients”.

But, from his emphasis, it would seemthat Norwich Union is increasinglyfavouring its commercial brokers – andthat he sees these as having the greatestprospects. “It is possible to be a successfulpersonal lines broker, but you need to havevolume and technology. In many cases,


NU role

VENTURE CAPITAL

The rise of broker Smart & Cook is in part downto funding it received from venture capitalist 3i. Is this the route other brokers should take?Jane Bernstein looks at the options

The growth and consolidationamong UK brokers has been welldocumented, with activity seenacross the board – from the rise ofsmaller brokerages to the continuedexpansion of their largercounterparts.

Raising finance is a fundamental part ofthe process and the past two to three yearshave seen a growing interest in thebroking sector from providers of venturecapital and private equity. But is this thebest route for brokers looking to broadentheir horizons?

The British Venture Capital Association(BVCA) points out that obtaining privateequity is very different from raising debt ora loan from a lender, such as a bank. TheBVCA explains that lenders have a legalright to interest on a loan and repaymentof the capital, irrespective of your successor failure. Private equity is invested inexchange for a stake in your company and,as shareholders; the investors’ returns aredependent on the growth and profitabilityof your business.

AccountabilityOne of the most important issues toconsider when approaching a venturecapital firm is that this is not simply afinancial transaction, and the firm willexpect to have some input into thebusiness. This should, however, be anadvantage, as long as you choose the rightcompany. As David Roberts, a partner withaccountants CLB Littlejohn Frazer,emphasises: “It is not a distantrelationship. If you’re going to get privateequity or a venture capital company onboard, you have to accept that there’s adegree of accountability at a senior level.You therefore have to choose someonewith whom you can do business on thoseterms.”

Last year, Smart & Cook teamed up

with venture capital provider 3i. PaulMeehan, the broker’s chief executive,asserts: “It is very important to get someonewho knows what you are doing becausewhen you’ve raised the money, you arethen partnered with that firm and if theydon’t understand the business, you mayfind yourself spending time on simplybringing their knowledge base forward.You want people who understand theopportunities and the risks.”

Non-executiveMr Meehan says the fact that 3i asked for anon-executive to be appointed has workedwell for the broker. “This has brought atremendous amount of objectivity andadditional expertise to our board. It is not acase of the 3i man sitting at the table – heprovides expertise in vital areas.”

Francis de Zulueta, a director with BPMarsh, which specialises in providingcapital to financial sector intermediaries,comments: “We like to say that we are eyeson but hands off. So yes, we will putsomebody on the board and provideguidance and advice, but because we areminority investors, it isn’t our businesseffectively.”

Mr Zulueta says typical areas where thefirm would provide help if required wouldinclude the strategic operation of thecompany, financing mechanisms, as wellas advice on mergers and acquisitions,remuneration and bonuses.

Reinforcing the importance of talkingto the right firm, Oliver Laughton Scott,managing principle for IMAS corporateadvisors, expresses concern that if brokersapproach a venture capital firm which isnot committed to the sector, then they mayfind themselves turned down andtherefore discouraged when in fact theyhave a good proposition.

Asked about how to ensure therelationship between broker and venture

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VENTURE CAPITAL

capital provider remains healthy, PeterGordon, 3i director, emphasises: “The keyis to work with a VC who has a deepunderstanding of the sector and iscommitted to it over the longer term.”

The problem in the past has been thatthere have been few, if any, venture capitalfirms with specialist knowledge of theinsurance broking business. As MrMeehan comments: “There are plenty ofventure capital firms out there, but therearen’t too many who understand thebusiness we are in.”

The good news is that this situation isbeginning to change. Mr Laughton Scottexplains: “The venture capital firms areincreasingly targeting the financial

What is private equity?

In the UK, continental Europe and much of the rest ofthe world, ‘private equity’ means the equity financingof unquoted companies at many stages in the life of acompany from start-up to expansion together withmanagement buy-outs and buy-ins of establishedcompanies that have real growth potential which canbe enhanced with private equity support. ‘Venturecapital’ is a subset of private equity, covering earlystages of funding from seed to expansion capital. Thekey elements of private equity and venture capital areinvestments in unquoted companies, equity capital bynature, medium to long term and targeted atcompanies with growth potential, which can ultimatelybe realised through trade sales or a flotation on thepublic markets.

There are plenty of venturecapital firms out there, but therearen’t too many who understandthe business we are in.

‘‘’’services sector generally. Ten years ago, theventure capital industry was verygeneralist but competition has forced theprivate equity providers to specialise.”

The general message is that venturecapitalists are beginning to take an interestin insurance brokers, and particularly inthose who are performing well in theirconsolidation strategies. Mr Gordon addsthat consolidation needs to be driven by acredible management team.

While venture capitalists are beginningto target the insurance broking sector,many are still cautious about investing init. Mr Roberts says lack of understandingcontinues to be a problem. He explains:“Insurance as an industry has its share of



VENTURE CAPITAL

scary headlines. If you don’t know how itworks, they can be very worrying.” MrRoberts also points to the cyclical natureof the insurance market as an issue thatcauses concern.

However, it is not just the venturecapital industry that has a lot to learn andthere is still a certain lack of awarenessamong some brokers about the venturecapital route. Mr Zulueta agrees: “Theproblem is that the venture capital world generally tends to be quite opaqueand many people just don’t know where to start.”

HomeworkThere is a general consensus that it isimportant to do your homework beforeapproaching the venture capital marketwith a proposal. Mr Roberts asserts: “Iwould strongly counsel against going to aventure capital or private equity investoras an opening step – just to talk about thepossibilities. You have to go withsomething a lot better thought-out. Youneed to have thought through the issuesthoroughly.”

Mr Meehan agrees: “You’ve got to createa very clear idea and set of goals and comeup with a business plan and then you cango into the market and speak to thevarious venture capital firms that are

around. I would recommend that youapproach one of the top accountancy firmsfor advice.” Mr Laughton Scott adds: “Youwould need to address the key issues suchas management, growth prospects,earning stability and exit. It has to addressthose issues.”

The decision to involve a venture capitalprovider in expansion plans is not to betaken lightly. It is not a decision that has tobe reached alone, however, and there areaccountants and specialist advisors outthere who can help. The message is that it isimportant for both broker and venturecapital firm to understand each other. “Iwould not advise anyone to rush into it,”concludes Mr Meehan.

k Clearing banks – principallyprovide overdrafts and short tomedium-term loans at fixed or,more usually, variable rates ofinterest.k Investment banks – organise the

provision of medium to longer-term loans, usually for largeramounts than clearing banks.Later they can play an importantrole in the process of “goingpublic” by advising on the termsand price of public issues and byarranging underwriting whennecessary. k Finance houses – provide various

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Other forms of finance

You’ve got to createa very clear ideaand set of goals andcome up with abusiness plan.

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Clients generally are not interested in ourremuneration and when they are, theyusually ask how we do it for the price.‘‘’’

REMUNERATION

Overriding commission conflictThe way brokers arepaid continues to stircontroversy in thepress, but manybrokers’ clients aremore than satisfiedwith the service theyreceive. StephanieSpicer asks if it is time to put the lid on Spitzer

The action taken by New York Stateattorney general Eliot Spitzer oninsurance remunerationtransparency and the subsequentfallout in the US has led to morecolumn inches in the press than mostpeople cared to see. This isespecially so among many UKbrokers that, quite rightly, want todistance themselves from any link.

The fact remains the case has raised, indramatic terms, what can happen whenbrokers and insurance companies sail tooclose to the wind when it comes to offeringincentives. And it has split the market herein the UK between those brokers, usuallythe larger players, who say that they willmake commission payments transparentto clients and those adamant that theyshould not have to, unless required to do soby the client.

The latter’s absolutely the case. The FSAhas not stipulated brokers need toannounce their commission arrangementsto clients – although, in the case ofcommercial cover they are required to doso should clients request it. Anecdotally, itseems most UK commercial clients aresatisfied with the service they are receivingand are not interested in asking for thisinformation.

Conflict managementBut whenever commission and feetransparency is talked about, the wholeSpitzer experience has suggested thatwrongdoing is far more widespread than itis – and has created an implication that notdeclaring what a broker is earning carriesthe message something is being obscured.

And, if impropriety is suspected there isno doubt the FSA will take decisive action.

The solution to it all lies in conflictmanagement, as Eric Galbraith, chiefexecutive at BIBA, emphasises.

“The current regulatory environmentallows the market to be regulated indifferent ways. That allows the wholemarket to operate in an environmentguided by the principles around managing

conflict of interest. As an industry weshould not be asking the FSA to be moreprescriptive.”

Mr Galbraith also points out there havenot been issues in the UK like those seen inthe US. “The competitive environmenthere means the effects on the market havebeen to make sure the consumer has nodetriment whatsoever.”

Paul Dickson, chief executive ofDickson Insurance, agrees the issue is oneof management, especially of the internalconflict that can arise as result ofincentives and the provision of money andnon-money incentives provided tobrokers from insurers and not transparentto the client.

“We have to develop andmaintain internal controlsto ensure there is notpotential conflict ofinterest. Becausethere is a higherstandard of care


remuneration is outside the interest areaof insurers. From his point of view, the onlystipulation RSA has made to brokers it hascommission or remuneration agreementswith is that they ensure transparency if thecustomers request it.

“Disclosure will come from demandfrom customers. Our feedback frombrokers is there is the expectation they willdiscuss how they are remunerated but it isnot ubiquitous,” says Mr Canniffe.

What Mr Canniffe does predict is amore to net rating, where insurers willquote a net rate excluding commissionsand the broker will state separately,depending on the remunerationarrangement they have with the customer,what commission or fee they are charging.

“Our approach may change dependingon requests from national brokers,”concedes David Bruce, director of nationalbrokers and accounts at Norwich Union.“It is more interesting the way somebrokers are approaching things post-Spitzer because our view is nobody issuggesting the UK market is corrupt andwe feel quite comfortable for the market tooperate the way it has been. However,companies like Marsh, etc, are taking adifferent approach and no longer want toaccept over-riders and that is theirprerogative.”

they are, they usually ask how we do it forthe price.”

Whenever the issue of transparency isdiscussed, fees inevitability come on to thetable as an option. But again, apart fromlarger players or larger clients, going downthe fee route is not something most brokersenvisage, for the near future at any rate.

“Fees are a much better idea for us moreoften,” says Mr Foster. “I would be happy ifwe moved over to a situation where wewere remunerated by a fee. Given we areliving in a full disclosure world, one of thecentral absurdities of an insurancebrokers’ existence is the more successfulyou are in saving a client premium, theless you get paid for it.”

Brokers such as Mr Foster are content to leave the remuneration choice toclients, but are also making preparationfor the day when fees may become more of a reality.

“We are running timesheets on certainaccounts to see how much time we arespending on them,” says Bernard Murphy,managing director of brokers Martin Hale.“While at the moment we have softdisclosure, the feeling is in the future theremay be hard disclosure. Once you moveover to hard disclosure, fees are only roundthe corner. If we do have to start chargingfees in the future, we need to do some ofthe ground work now to understand whatwe should be charging and how wecalculate that for individual clients.”

IncentivesAs for the issue of incentives, while insurersnot surprisingly see no problem brokersalso feel even potential is over-rated.

“For smaller brokers, they have neverbeen on the table, it is only for the largerregional brokers and the nationals,” saysMr Foster. “If we weren’t members of theWillis Commercial Network we wouldn’thave achieved premier broker status withmost of our major carriers. We would onlyhave got contingent commissions frommaybe one or two of them, so there is awhole raft of brokers who have neverenjoyed them.”

Mike Canniffe, director – corporatebusiness at Royal & SunAllianceCommercial, says the only real issue istransparency between brokers andcustomers and that the level and style of

sion conflict Is there a problem in the UK?“A lot has been made of this issue, butI do not believe there is any consumerdetriment within the currentregulatory environment. Theindustry must, however, manage anyactual or perceived conflicts.” Eric Galbraith, BIBA chief executive

“We think we have to develop andmaintain internal controls to ensurethere is not potential conflict ofinterest.” Paul Dickson, chief executive,Dickson Insurance

“Given we are living in a fulldisclosure world one of the centralabsurdities of an insurance broker’sexistence is the more successful youare in saving a client premium, theless you get paid for it.”John Foster, director, Foster Leighton

imposed on financial services business, wehave to go that extra mile to ensure themanagement of the broker in dealing withthe potential conflict of interest.”

DisclosureWhile some of the larger brokers havemaintained they are going to declarecommission to clients automatically, theconsensus among many regional andsmaller brokers is that they do not intendto go this route.

“It hasn’t caused any problem for us atall in having or needing to disclosecommissions,” says John Foster, director ofbrokers Foster Leighton. “We are probably

arrogant enough to think we addvalue to the transaction and

are worthy of hire.Clients generally

are not interestedin our

remunerationand when

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INSURER SECURITY

It might be the lure of cheap rates andthe promise of cover for hard to placerisks, but using offshore insurers canspell trouble.

When flash floods destroyed the heart ofthe Cornish village of Boscastle in August2004, the media’s attention was fixed on theaftermath and the efforts to rebuild homesand livelihoods.

Yet, what should have been the idealchance for the regulated UK insuranceindustry to show its worth became areputational nightmare when in April thisyear, Jordan-based Arab German Insurance(AGI) refused to meet the total costs of itsclaims, offering a small percentage to somepolicyholders and refusing to pay thosewho did not accept the smaller offer.

The Prince of Wales became involved inthe dispute after one of the propertiesinvolved fell under the Duchy of Cornwall.

And it was not just those in Boscastlewho were left high and dry. AGI underwritesa broad range of small commercial risksincluding guesthouses and pubs in the UK and has so far avoided calls from themedia and even loss adjusters hired toevaluate the claims.

BIBA has been at the forefront of theissue, working with retail brokers andpolicyholders on a potential class action.

It is a throwback to the issues surroundingthe market following the collapse ofIndependent Insurance which left thousandsof policyholders out of pocket and questionsbeing asked of why brokers chose torecommend a company which was widelysuspected of being in trouble.

While that is a domestic example, theAGI situation is not and questions are nowbeing raised about how safe trading with anon-UK regulated risk carrier is.

The European Union’s passporting rulesmean that if an insurance entity is regulatedby a EU member state it is free to tradeacross the single European market. Whilebased in Jordan, AGI handled much of its UKbusiness out of Cyprus, which falls withinthe EU.

No placelike home

The refusal of offshore Arab German Insuranceto meet claims has shown the dangers ofplacing business with offshore insurers. Jon Guy advises it is far safer to place risks in the UK

AGI is a case in pointas to why we are notfully satisfied withthe use of offshoreinsurance entities.

‘‘’’the broker winter 2005 19

INSURER SECURITY

When it came to enforcement however,the UK regulators have no jurisdictionover AGI, so not only were policyholdersunable to get their claims paid, thoseclaims were not covered by recourse to theFinancial Ombudsman Service or theFinancial Services Compensation Scheme(FSCS), which pays out to thepolicyholders of collapsed UK firms.

An FSA spokesman says: “AGI is a casein point as to why we are not fully satisfiedwith the use of offshore insurance entities.There are no specific rules within ourregulations that say you cannot get yourcar or home or business covered via anoffshore insurance company. However, ithas to be pointed out that like the case ofAGI, there is no redress through theOmbudsman or the FSCS because if anoffshore company fails we have no powersto act or responsibility to step in.”

Treating customers fairlyHe adds: “The same is true of brokers in asmuch as there are no specific rules orregulations which stop the use of offshoreentities but we would expect the broker toexplain to the customer where they havefound cover and why. It comes down totreating the customer fairly and as such itwould be the expectation that should abroker choose to recommend, the clienttake its cover from a non-UK regulatedoffshore insurance company.”

He says the broker would need toinform the client not only of the fact that

the cover was being underwritten outsidethe UK, but also the fact that should therebe any problems the policyholder wouldnot have any recourse to those serviceswhich are provided by the FSA for UKpolicyholders.

“However, there is also nothing thatsays that the client cannot choose to payless for their cover with an offshore entityonce the situation has been explained.”

RatingsRating agencies have been reluctant to jointhe debate. One insurance analyst says:“Rating agencies are loath to becomeinvolved. Our ratings are a guide and ouropinions based on the information wehave given that there are those companiesthat do not want a full rating and we havelimited data on which to base our decision.Brokers are aware of the strength of theregulatory environments of the variousoffshore domiciles. There are many whichhave robust requirements and those whohave been authorised by them are well runand adequately capitalised carriers.”

Brokers are aware of the strength of theregulatory environments of the variousoffshore domiciles.‘‘’’

He adds there are clearly other areaswhere the regulations are not so stringentand the brokers should advise the clientaccordingly.

Much of the attention in the AGI case hasturned to the wholesale brokers who werethe UK distributors of the cover.

Last month, the two distributors bothsaid that they had made it clear to retailbrokers that the cover was offered byunregulated offshore insurer, which is notpart of the FSCS.

However, it cut little ice with some retailbrokers who still feel bitter about being putin the position of having to field angrycustomer complaints as AGI refuse toanswer calls and correspondence.

“These companies need to take a longhard look at the health warnings they gavebrokers in the run up to this,” said Grant Ellis,chief executive of The Broker Network.

It would be wrong however to categoriseall offshore companies as a serious risk.Zenith, for example, is Gibraltar-based inorder to take advantage of the tax andinvestment benefits of the offshorefinancial centre and the feeling remainsthat the solvent and trustworthy offshoreentities vastly outweigh the rotten eggs.

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Boscastle under water:policyholders were leftexposed after the flood

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YOUR BUSINESS

The petty-minded attitude ofa London lawyer wasrevealed to millions thissummer in an email where heasked his secretary to pay a£4 dry cleaning bill to removeketchup stains from histrousers.

If anyone remembers it, thisserves as a reminder that emailscan reach far more people thanintended. Any brokers withoutan email policy at work maywant to look at implementingone.

According to Stuart Fox,managing director HR at Aon UK:“All brokers should make surethey have a strict email policythat is communicated clearly. AtAon, every new employee isissued with an IT security code ofconduct which includes detailsof our email policy.

“Further information isavailable on our intranet,including a statement that emailand other information systemsare not to be used in a way thatmay be defamatory, disruptive,offensive to others, or harmful toAon’s reputation.”

Few brokers will want toprevent their staff from usingemail for personal use. But

Why an email policy makes sense

In the fast-changing business environment, there are many issuesaffecting those running brokerages. These are just some of the currenthot topics, but let us have your feedback on the areas that matter

excessive “surfing” can affectproductivity.

The key is having clearguidelines to prevent misuse andfuture problems.

The Chartered Institute ofPersonnel and Development hasinformation on its website and thefollowing is extracted from theInternet and email policiessection. Brokers should takeexpert advice on creating a policyand may also want to work withan IT specialist to ensure theirfirewalls and other securitysystems are robust.

Q: Why have a policy?A: To ensure employeesunderstand the way in which itshould be used. Staff should beaware of the dangers of misusingtechnology and be aware that theycould face disciplinary action.

Q: Can I monitor myemployees’ emails?A: Not without telling them. Anorganisation must have developedan agreed strategy for using theInternet and ensure this complieswith the Data Protection Act 1998.The Information Commissioner isresponsible for overseeingcompliance and has produced an

Employment practices data protection code on an employer'srights to monitor staff. Thisprotects staff from covertmonitoring except in exceptionalcircumstances, such as wherethere are grounds for suspectingcriminal activity.

Q: What should be banned?A: Typically, many companieswould ban staff from viewingpornographic websites.

Q: What can I do aboutsecurity?A: You may want to bar certainsites or prevent staff using externalsites such as Hotmail to preventviruses. Staff should be warnedabout downloading software orother files from the Internet.

Q: What’s blogging?A: It’s running an online diary.There have been cases wherebloggers have criticised theiremployers – and subsequentlybeen dismissed. You may want torefer to this in the email policy.

Q: Is an email the same as anyother written document?A: Yes – staff should not makedefamatory statements in emails.


YOUR BUSINESS

It is important that brokers,along with all other employers,are aware that there are limitedgrounds on which agediscrimination can be justified.

Employers should takemeasures to ensure they arecomplying with the law. Thisincludes extending harassmentpolices to cover age and makingsure that employees behaveappropriately. This should alsoinclude avoiding jokes that ridiculeolder people.

Likewise, bosses and all staffshould avoid making stereotypicalassumptions regarding experienceor capability, for example, thosewho are older may be lesstechnically competent.

Just because someone is older,they must not be excluded fromrelevant training or promotionopportunities – and many haveshown they are more than capableof picking up new skills.

Employers should also ensurethat there are appropriateprocedures in place to deal withretirement and dismissals at anyage. It should not be assumed thatolder workers are incapable ofperforming their duties atretirement age, or that they willhave increased ill health absence.

The age discriminationlegislation is expected to have a bigimpact on the way bosses managestaff and all those who employ staffshould make sure they are familiarwith the issues. Those requiringfurther guidance should seekspecialist advice.

Pass on your management tipsDo you have a tip you can share with other BIBA members

on running a business effectively? If so, please email the editor,Leighann Burtrand, at [email protected] and we’ll send abottle of wine to the best, which we’ll publish in the next issue

Age discriminationlaw on horizonHelen Lewis, a specialist employmentlawyer at Hugh James, provides an updateon new legislation on age discrimination setto come into force from October 2006

Some two years ago, the imarket portalwas launched at the BIBA conference inGlasgow.

We now have seven insurers participatingin imarket and are in advanced discussionswith a number of others. The technology isproven, working efficiently and business isbeing traded on it daily.

There are two ways of obtaining termsand conditions via imarket – using either aweb browser or a system supplied by asoftware house.

Comparative quotations via a webbrowser have been available on imarket forsome time for nine commercial classes –shops, offices, hair and beauty, pubs andrestaurants, property owners, tradesman,commercial vehicles, commercial combinedand motor fleet. These facilities are well

used and 82 per cent ofdaily users in our recentsurvey said they werehappy with the facilities.

Most attention iscurrently focused onproviding trading facilitiesvia software housesystems. Seven majorsoftware houses – Acturis,CDL, Insurecom, Misys,Sectornet, Sirius and SSP– have committed to

integrate with imarket. Acturis achieved this in Augustand the others will follow this year and next. This meansthat via a single data entry on his or her system, a brokercan obtain quotes and place new business. Work is alsounder way to automate mid-term adjustments andrenewals.

All the insurers have different systems and constraintsbut all share a single common purpose – to make imarketa success. This will have happened when brokers areenjoying the substantial cost savings that integratedtrading via imarket will bring – one study, by Acturis,estimated these could be as much as 30 per cent of thecosts of processing.

When multiple sets of data entry are reduced to one,when most commercial insurance documentation is rightfirst time and when insurers and brokers share a commonset of data, imarket will have achieved its objectives. Thisis not a simple task for either software houses or insurer’sbut we are making solid progress towards it.

Imarket is more than just trading and there are manyother facilities which are in daily use or about to belaunched, such as the schemes library, which containsspecialist facilities for brokers placing unusual risks orclaims enquiry.

The new website – www.imarketinfo.co.uk –contains full details of the system and how to use it.Register, learn about imarket and let us know your views.Martin McLachlan is managing director of Polaris, which manages imarket

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Martin McLachlan

What the lawwill mean The draft regulations will:k ban age discrimination in

recruitment, promotionand trainingk ban retirement ages

below 65 – except whereobjectively justifiedk require employers to

inform employees inwriting of their intendedretirement date and theirright to request tocontinue workingk extend the right to bring

unfair dismissal andredundancy claims toemployees who are65 plusk impose a duty on

employers to consideremployees’ requests tocontinue workingbeyond retirement age.


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four receive more than five days’ training ayear. When questioned about theirtraining needs, 10 per cent claimed to haveno development needs whatsoever.

And technical competence testing isonly one aspect. Observing people in theirroles, listening in to telephone calls, andcarrying out file audits should be part ofthis. Nor is it just a question of technicalknowledge. Many managers andsupervisors come from technical roles andhave received little or no managementtraining.

Yet training budgets often seem to bethe first casualty when brokers look to cutcosts. Is this because training can seemintangible? If so, look a little closer and thebenefits can nearly always be seen in termsof improved efficiency, better customerservice and improved sales and retention.Ian Jerrum is managingdirector of SearchlightSolutions, a provider ofinsurance trainingservices

TRAINING

Technical training, as a researchexercise carried out by BIBA recentlyfound, is the industry’s mostimportant challenge. But the samesurvey also found that two in fivebrokers lack even a basic trainingplan and a third do not currentlyprovide any training for their staff.

So what is holding brokers back? Oneanswer is probably cost. But effectivetraining doesn’t need to be prohibitive. Thekey is defining employees’ training anddevelopment needs and putting cost-effective targeted mechanisms in place tomeet these.

Training is about much more thansatisfying the regulator and will add valueto a business if intelligently directed.

Firstly, brokers should undertake askills audit. This is to assess employees’current strengths and weaknesses againstthe competencies needed for their role.Then, a training needs analysis should beconducted to ensure the trainingprogramme supports business needs.

This requires reviewing businessobjectives and priorities and identifyingthe level of skills and knowledge the teamwill need to help you achieve your goals.The template can then be matched againstcurrent skills to create the plans. Carryingout this exercise in tandem with anexperienced specialist training providercan ensure business priorities andaspirations are matched with effectivetraining solutions.

There is still some way to go. The BIBAsurvey revealed 14 per cent of respondentsreceive no training at all, and only one in

Preparation pays off

Ian Jerrum providespointers on how to put a training plan into place

One size doesn’t fit allTerence Clark, groupcompliance manager for CBG Group, explains histraining plan philosophy

“Our training plan is some 70 pageslong. Simply downloading atemplate plan is not enough. First,do a gap analysis and get buy-infrom staff.

You need a thoroughunderstanding of each employee’srole. For retail and non-retail,customer and non-customer facingstaff, there are different disclosureand training requirements. Butwhat could affect them all? Dataprotection, law of agency andmoney laundering may be relevant.

Soft skills training may benecessary – topics like timemanagement.

It’s essential to keep properrecords for everything.

My advice would be don’t skimpon training – secure a generousbudget. This won’t just covercourses. Study fees, course booksand maybe incentives for passingexams need to be included.

Some insurers produce goodfree training. But don’t rely on this.Some courses need to be paid for,perhaps in risk management andeven first aid.

Encourage employees to stayup-to-date by reading the tradepress and attending roadshows.

And, of course, just gettingsomeone competent is not the endof it. If I took my driving test now, I’dprobably fail – training must alwaysbe updated.”

Training is about much more thansatisfying the regulator and will add valueto a business if intelligently directed.‘‘’’

Info: visit the www.biba.org.uk /training


SCHEMES FOCUS

£1.2 billon in premium, employing morethan 2,800 staff. The TowergatePartnership will have enormous strengthin the marketplace, which BIBA brokerscan access via our four BIBA schemes:Professional Indemnity, PersonalAccident, Credit & Surety andCommercial Combined.

Andy Homer, chief executive of theTowergate Partnership, commented:“Focusing on the needs of intermediariesand their clients is central to what we do.Brokers have maintained their dominantposition in the UK commercial insurancemarket because of the excellentrelationships they maintain with theirclients – often in the face of prettyordinary service from many insurers.

A key benefit of BIBA membership isthe access we offer to a range ofexclusive schemes and facilities. Afull list of these is provided here, butwe are also available to supplymembers with any further detailsthey require.

In this issue, we focus on the newmerged operation from Towergate, whichhas proved itself as one of the UK’s mostinnovative companies within theinsurance sector and broking market.

We also detail a new product from FirstAssist, the health and wellbeing provider,which has launched a special health checkproduct, which can offer reassurance forboth employers and employees. Two newexclusive schemes are about to belaunched. Look out for details to followshortly and an overview in our next issue.

Towergate – now a single brandTowergate’s merger with Folgate bringsfour BIBA schemes under the Towergatebrand.

The merger of Towergate Underwritingwith sister company, the FolgatePartnership, completed at the end ofOctober to form the TowergatePartnership.

The new group will control in excess of

BIBA’s schemes: the full range1 Accident, Sickness and

Unemployment2 BIBAlet3 Breakdown4 Business Travel5 Commercial Combined6 Credit Insurance and Bonds7 Cyber-Liability8 Electronic Marine Cargo9 Excess Liability10 High Net Worth11 Home12 Loss Recovery Insurance13 Marine Cargo14 Motor15 Personal Accident16 Travel17 Unoccupied Properties18 Vehicle Data Check19 Web Based Directors and

Officers

BIBA facilities20 Contract Law Services21 Data Protection22 Financial Compliance Support23 Healthcheck24 Insurer Security Services25 Members’ Own PI Insurance26 Personal Lines Administration27 Premium Finance28 Regulatory and Employment

Protection29 Risk Management30 Telecoms31 Conflict Investigation Service

A rebrand from Towergate and a healthyoption from First Assist are set to bringfurther business advantages for BIBAmembers, says Graeme Trudgill

For simple products we areinvesting heavily in e-commerce…

‘‘’’

Keeping ahead of the game


“The Towergate Partnership is all abouthelping brokers to maintain these clientrelationships by providing them withproducts and service they need to meettheir clients’ expectations.”

He adds that, where underwriting isrequired, Towergate does not believe inoffshore call centres or automatedtelephone answering, but aims to givebrokers direct access to professionalunderwriters with the expertise andauthority to trade. “For simple productswe are investing heavily in e-commerce tosave brokers time and facilitate anefficient process. An example is our BIBA

Visit www.biba.org.uk for full detailsof all of BIBA’s schemes

The professional indemnity initiative launched at the BIBAconference in April has made good progress through thesummer months.

Members have reported increased competition for brokers’PI insurance following the appointment of the accredited brokers –Alexander Forbes, Towergate and First City – and there have been some improved policy terms and conditions as a result of theirhard work.

A further update is that a benchmark policy that will helpmembers understand the important criteria in the policy wordingwhen negotiating their next renewal is under preparation. Thisshould be ready for publication before Christmas.

We are particularly interested in hearing frommembers who have difficulties with settling claimsor who have anything to report to us concerningnotification of claims or circumstances.

The reporting requirements of PI policies are not,in some cases, consistent with complaints handlingrequirements or the Financial Ombudsman Serviceprocedures. We are looking at these inconsistenciesas part of BIBA’s ongoing PI initiative and feedbackfrom members would be valuable.

Your feedback should be to Graeme Trudgill atBIBA. He can be emailed at [email protected]

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Personal Accident scheme, which allowsbrokers to quote online. Feedback frombrokers on this facility has beenexcellent,” he says.

Executive chairman Peter Cullumadds: “As a staunch supporter of thebroker community, Towergate has anatural affinity with BIBA. In addition tobeing a scheme provider, we are partnermembers. I look forward to developingour relationship with BIBA’s members.”

A healthy offer from First AssistHealth and wellbeing company FirstAssist has linked up with BIBA to offerHealth Check.

In a survey of employees conducted byFirst Assist, it was found over 86 per centsaid that they would expect to servicetheir car at least once a year. That samegroup, when asked when their lastpersonal health check or “service” was,replied:• 67 per cent have never had one• 19 per cent have had one in the last

five years • 12 per cent have a regular health check.

According to Paul Bateman, AccountManager of First Assist: “The economicsof running a car are clear. A healthy,well- maintained engine is more fuelefficient, powerful and reliable. Theparallel with our own health is obvious,but even after the millions spent onhealth education, we are resolute in ourresistance to change.”

He added that brokers have “a uniqueopportunity to influence the health ofclients’ companies, not just by preachinggood health but by showing thefundamental link between lower healthrisk and insurance costs”.

Mr Bateman concludes: “It isultimately the finance director who willbe persuaded by premium savings andsubsequent improvements in health andsickness absence rates. Underwriters arebecoming increasingly interested in thismodel and a number of employers havebeen able to create entire corporatehealth programmes and offset the costs.Health really is your opportunity for thefuture, so start with looking after yourown staff.”

For details of the BIBA Health Check,please visit the Scheme section of theBIBA website.Graeme Trudgill is BIBA’s technicalmanager

SCHEMES FOCUS

Handbook in the wingsA Professional IndemnityHandbook for brokers is in thecourse of preparation. Thehandbook will include guidanceon regulation and broker PIrequirements, the FinancialOmbudsman Service,compliance and the duty of care,benchmark policy wording andnotification of claims andcircumstances. It will be postedto members soon – so pleasewatch out for it.


Roger FlaxmanBIBA’s PI consultant

Current issuessurrounding VAT andIPT within theinsurance sector aredissected by Andrew Green

As most brokers will be aware, VATand IPT can be complex andfrustrating areas, and, on occasion,give rise to different interpretationsbetween HM Revenue & Customs(HMRC) and the industry.

VAT in particular is a fast-moving areawith opinion, law and practice changingas insurance companies adapt theirbusiness methods in an increasinglycompetitive market. A full guide to thesetopics requires a weighty tome but it ishoped the following will provide a briefstructured insight into the current issues.

Insurance and related services can beexempt for VAT purposes under both UKand EU law. These exemption provisionsextend to certain secondary serviceswhere “the intermediary is part of theprocess of bringing together a personseeking and a person providing insuranceservices” – meaning the activity of brokersand agents and product providersfacilitating the supply of insuranceservices between the two parties.

RegulationThe nature of these intermediary servicesis detailed in the legislation. Recentchanges in FSA requirements requiringgreater regulation of insurancecompanies, their agents and brokersshould help in determining who is part ofthe insurance process and who is not. As aresult of insurance activities being exemptthere is little opportunity to recover VATon their overhead costs.

Some of the major costs within theindustry are the back office services andstaff costs necessary to support insurers

with their claims and of the costs associatedwith marketing products and services.

Many of these activities are provided bythird party suppliers, who are clearly notpart of the insurance process. Theirservices are not covered by the exemptionoffered within the law and are thereforestandard rated.

Over the years, insurers and brokershave looked to outsource a wideningvariety of services for commercialpurposes, while trying to maintain VATexemption and avoid irrecoverable VATcosts. These outsourced activities havebeen subject to more scrutiny andchallenge by HMRC who believe that VATshould be charged on such services andwhich would be irrecoverable by theinsurer or broker.

Call centres, for example, are now partof everyday life. Despite the informationthey gather, their activity is not one ofproviding an insurance service. As such,their activity on its own would attract VATand represent a largely irrecoverable costto the provider.

The industry recognised this issue andin a recent VAT tribunal case the tribunalallowed the company’s appeal againstHMRC’s contention that the services weresubject to VAT. It held that the services of acall centre were exempt under UK VATlaw, as the call centre was able to “put theinsured on risk without reference to theinsurer”. Clients were able to gaininsurance cover over the phone becausethe call centre acted as the insurance agent,and as a result of this the insurer avoids the


A taxing business

otherwise irrecoverable VAT costs of usingthis third party. Customs then issued aBusiness Brief to clarify theirunderstanding of the VAT position.

The most high profile case to challengeoutsourcing provisions is the oneinvolving Arthur Andersen. This is aEuropean VAT case and of particularsignificance to the industry, as the relevantEU VAT law is perhaps broader, andtherefore more straightforward, than thedetailed provisions in the UK law.

The case is fundamental in consideringwhether the activities undertaken by anassociate company under a collaborativeagreement are “related services performedby insurance brokers and agents”.

It challenges many of the structuresthat are in place as a result of previous UK

TECHNICAL BRIEFING

tribunal decisions. The current rulinggiven by the European Court has thepotential to make any future exemptiondifficult.

AgreementsThe European Court has ruled that Article13B(a) of the Sixth Directive is “to beinterpreted as meaning that ‘back office’activities, consisting of rendering services,for payment, to an insurance company didnot constitute the performance of servicesrelating to insurance transactions carriedout by a broker or an agent within themeaning of that provision”.

Of particular concern is that thecollaborative agreement between the lifeassurance company and the defendant,drawn up under commercial terms,allowed for the provision of expert staffand the ability to take decisions on behalfof, and to bind, the assurance company. Aswe have seen, previously thesearrangements have been consideredsubject to exemption.

In recognition of the significance of theAndersen case, HMRC has issued a

Consultation on Changes to the VATExemption for Insurance Related Services. Thispaper invited responses from the Industryby 30 September 2005 and consideration isnow being given to the way forward.However, changes to current UKlegislation are already proposed to takeeffect from 1 January 2006. Notes to therelevant existing UK VAT law will besignificantly changed or removed in orderto bring the regulations more in line withthe wording in Article 13B of the SixthDirective.

ImplicationsThe effect of these changes will be allinsurers, reinsurers, brokers and otherinsurance related businesses will, as amatter of urgency, need to look again attheir outsourcing provisions and considertheir cost implications post 1 January 2006.Action should be taken now to reviewexisting agreements to understand thepotential cost and VAT obligations.Gaining exemption on insurance relatedservices will become subject to evenstricter parameters regarding who is part of

the process in the provision of insurance.The Andersen case will rewrite some of

the arrangements that currently fallwithin the UK exemption for insurancerelated services, and the forthcoming VATchanges to insurance provisions will bringsignificant cost implications to theinsurance industry. It is essential thatcompanies now look at their businessprocess and structure. They need tounderstand the implication of theiroutsourcing contracts and look carefully attheir inter-group arrangements wheresuppliers may now be considered removedfrom the advantages of the previousprovisions.

We also understand that wholesalebrokers should fall within the proposedexemption, but it is unclear whether retailbrokers who perform introductions willstill qualify.

Tax provisionsInsurance Premium Tax (IPT) is a tax onUK premiums. There are two basic rates, astandard rate of five per cent and a higherrate of 17.5 per cent. There is also anexemption for certain risks. Each rateapplies to particular types of insurancecontracts. The five per cent rate is forgeneral insurance products, the higher rateof 17.5 per cent for insurance supplied withgoods (e.g. white goods), services and travelinsurance. Exemption from IPT applies tolife, health and medical insurance togetherwith various commercial means oftransport. Many overseas countries alsohave premium taxes.

Any insurer engaged in the provision oftaxable insurance contracts is engaged in ataxable business for IPT purposes, andthese provisions also apply to certainintermediaries. There are certain deminimus levels and conditions, butbrokers are strongly advised to seekprofessional advice in checking theirstatus and requirement to register.

As with VAT, IPT is an assessable tax onthose registered. Given the volume ofinsurance business and the basis of IPT, it isessential for insurers to account for IPT inthe correct manner on behalf of theinsurers. A thorough review of the natureand conditions of contracts written and thebusiness processes that identify andcalculate both VAT and IPT are essential tominimizing risk by both brokers andinsurance carriers; insurance is riskyenough without adding tax and othercompliance risks to these businesses.Andrew Green is head of tax for Mazars,an international advisory andaccountancy group

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Action should be taken nowto review existing agreementsto understand the potentialcost and VAT obligations.

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ness

BIBA PARTNERS

As many brokers now realise,regulation is an ongoing process.Receiving your scope of permissionnotice was simply the start and for allfirms now trading, complying withthe FSA’s Handbook of Rules andGuidance should be a way of life.

The FSA has also recently announced itwill be following its review of themortgage regime byreviewing the effectivenessof the insurance rules. Thiswill start in April 2006.There are other updateswhich brokers need to beaware of, too.

Tracking client moneyMembers have encountered problems intracking client money held at thirdparties. This typically arises whendealing with a wholesale broker whodoes not have risk transfer with theinsurer. We recently announced theextension of the London Market protocol,which if successfully implemented,should prevent regulatory interventionfrom the FSA.

Trust deedInsurers collectively have been slow torecognise the potential for intermediariesto be handling monies that areexclusively subject to risk transfer and asa consequence, no market agreement onsuitable banking arrangements has beenforthcoming.

We decided during the summer to takea lead on this issue and draft a trust deedallowing intermediaries to hold risktransferred monies in a similar manner toclient monies held under an FSA non-statutory trust account. The trustwording remains under discussion.

The FSA has also undertaken a piece ofthematic supervision work looking athow intermediaries recognise andmanage conflicts of interest. We issuedour practical guidance paper onmanaging conflicts of interest in June andfollowed this by announcing the launchof the BIBA Conflict InvestigationService, run by lawyers O’Connors andSteeles.

The FSA is also drafting a “Dear CEO”letter as a follow up to its thematic work,the content of which we have yet to see.

Treating customers fairlyThe other main regulatory issue is theFSA’s Treating Customers Fairly (TCF)initiative. One of the FSA’s 11 Principlesfor Businesses is that a firm must pay dueregard to the interests of its customersand treat them fairly.

The FSA has issued a paper entitledTreating Customers Fairly – what it meansfor small firms. We encourage members toread this and have also entered intodialogue with FSA concerning producingmore specific guidance for brokers.

Regulation is here to stay and brokersthat keep abreast of matters will find iteasier to meet required standards – and atBIBA, we are doing all we can to ensure theregulator understands the benefits ofmaking compliance as practicable aspossible.Steve White is BIBA’s head ofcompliance and training

Members have encountered problems intracking client money held at third parties.‘‘’’

Steve White explains that the FSA’s regulatory regime is evolving and brokersshould make sure they remain up to date

EU directivesRules written as a result of EU directivesare not negotiable and as such, themajority of the conduct of business (ICOB)and client money (CASS) rules are likely toremain unchanged.

But, as part of the ongoing relationshipwe have with the FSA, BIBA has beendiscussing areas within the CASS ruleswhere they could provide further usefulguidance.

During the original consultationprocess, the FSA decided to apply the ICOBrules to insurers when they deal directwith customers, which we support, bothfrom a consumer protection and levelplaying field perspective. These rulesshould continue to apply to insurers andBIBA will make representations to the FSA

during their review exercise.

A regulationrefresher

COMPLIANCE


QUESTION TIME

Disclosure and Scottish Provident: a family’s anguishQ: Recently, the BBC showeda programme where ScottishProvident apparently hasrefused to honour a lifeassurance policy.

The life assurance policywas for a sizeable benefit andincepted in 2000.

Unfortunately, when thedependants claimed recently,the claim was denied as thepolicyholder had“understated his weight andconcealed a history of highblood pressure”. The generalpractitioner clarified thatthere was no medicalevidence of hypertension andthat there was no reason todoubt the weight on theapplication form was the trueweight of 17 stone.

To my understanding, thereis a sliding scale of medicaltests required depending onheight/weight ratio and levelsof benefit. Did ScottishProvident adhere to these?

The Ombudsman’s initialrecommendation was thatScottish Provident shouldreconsider its decision, butthe insurer has chosen to waitfor the final adjudication.

This is ongoing and couldtake several months, leavingthe family at risk of losingtheir home.A: While this affects lifeassurance, it has relevance formembers in the general markettoo. I fully understand theinsurer’s view in relation toundisclosed medical problems;however, we must assume that

the information on theapplication form did not showanything untoward in relation tothe health of this gentleman. If itindicated that he was 17 stoneand overweight, then the insurerhad the opportunity of looking atthis prior to accepting the risk.As I understand it, the insurerdoes not have the ability to relyon something to repudiateliability which he could haveasked at inception.

This might have been acorporate policy and, as such,then normal corporateconditions must apply. If theinsurer waives the right to aproposal form, they must acceptthat, within a set workforce,there will be people at risk fromcardiovascular or respiratoryproblems.

Should you tell your ScottishProvident clients to takeparticular care with disclosure?

Yes; but you should also tellall your clients. It is better todisclose at day one than to gothrough this procedure. Thefamily must be climbing the wall.We will need to wait for the FOSdecision on this and if they findin favour of the claimant then Iwould like to see the FOS take ahard line action – and not just inpaying the death benefit.

However, we cannot pre-judge their position.Peter StaddonHead of technical services

Client moniesQ: Why has BIBA relaunchedits client money protocol?A: The FSA’s client money rulesrequire intermediaries to keep an up-to-date record of client

SmartanswersThe BIBA team is on hand to answer your technical andregulatory queries

Members who have aquestion should send emailsto the following:Regulation questions:[email protected] questions:[email protected] /[email protected] Visit the Technical Advicesection of the BIBA website

to the FSA that collectively wecan solve this problem.

On introductionsQ: If I accept introductionsfrom an IFA, does he need tohave FSA permission?A: If the IFA is FSA-authorisedfor investment business, youcannot accept his introductionsand remunerate him unless hevaries his permission to includeinsurance activities.Steve WhiteBIBA’s head of complianceand training

monies held at third parties. This typically occurs where anintermediary passes clientmoney to a wholesale broker whodoes not have risk transfer withthe insurance company that therisk has been placed with.

Members have commentedon the difficulties they haveexperienced in obtaininginformation from wholesalebrokers as to which monies havebeen paid on to the insurer.

If, as a result of the thematicsupervision work beingundertaken now by the FSA, theregulator feels that the market isnot co-operating in anappropriate manner, it would beeasy for the FSA to write a simplerule forcing wholesalers toprovide the required information.

The protocol was launched in the London Market in late2004 and, if successfullyadopted in the provinces, should help prevent regulatoryintervention by demonstrating

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For more information about us or our products please visit... www.johnbeard.co.ukOr contact us... tel:01489 572121 fax:01489 570150 email: [email protected]

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