Biba launches FVA framework after FCA scrutiny

Graeme Trudgill

The British Insurance Brokers’ Association has launched a new framework to help members better articulate fair value.

This comes after the broking sector came under fire from the FCA around commissions received in the multi occupancy leasehold market.

An FCA report into 16 brokers, published on 21 April, proved to be a damning insight into some of the practices and shortcomings of brokers in the multi-occupancy buildings space.

Biba members are committed to providing fair value to the customers they serve, as well as the new policy stakeholders created in relation to multi-occupancy properties, reinforcing the core principle that the broker is the agent of the customer and acts in their best interest.
Graeme Trudgill

It found that in less than four years, insurance premiums for multi-occupancy buildings had increased, and the overall level of remuneration and commission being paid to brokers had risen substantially.

In the report, the FCA found that broker commission levels had varied from between less than 10% to a maximum of 62% in one case.

This has led to the FCA slapping new reforms on brokers, due to come into force on 1 January 2024.

Showing their value

It had also found that most brokers in the report were not able to give “adequate evidence” to show that they deliver fair value consistently for multi-occupancy buildings products.

The report said: “This is due to a range of factors including deficiencies in their product value assessment work, shortcomings in their recording and analysis of their own costs and insufficient scrutiny of the commissions they pay to others.”

However, when Biba CEO Graeme Trudgill, pictured, spoke to Insurance Post in May, he came to the defence of brokers, saying fair value assessments were a “new requirement” that broker hadn’t quite got the hang of yet.

He said: “This is something new. Members have submitted it. Obviously, it is not claiming fair value sufficiently according to the regulator’s interpretation.”

He believed that despite one broker being found to have charged a commission of 62%, the issue wasn’t that brokers were not giving fair valued service, it was that brokers were not showing the value of their service properly.

Trudgill said: “The FCA didn’t find that brokers weren’t giving fair value. What they found was a broker isn’t good at giving evidence that they’d been through a process to determine that they were giving fair value. That’s the bit that brokers need to work on.”

Therefore, he said Biba was in the process of building a piece of framework to help brokers better show value that will satisfy the regulator.

He said: “As a trade body, it’s our job to help support the members when new things come along. So, we are commissioning a new piece of work that will help the members deliver, what we understand, the FCA want them to show.”

This is what Biba has now announced.

The new framework

Created by economics and finance consultancy Oxera, the Fair Value Assessment Framework is available to members on Biba’s website, while a dedicated webinar will be hosted on Thursday (26 October) to provide brokers with a detailed overview.

Trudgill said: “Biba members are committed to providing fair value to the customers they serve, as well as the new policy stakeholders created in relation to multi-occupancy properties, reinforcing the core principle that the broker is the agent of the customer and acts in their best interest.

“The new Fair Value Assessment Framework will help our members to demonstrate the value they provide to customers and it can be applied by member firms of all different sizes.”

Reinder Van Dijk, partner at Oxera, said: “Oxera was delighted to partner with Biba to produce this Fair Value Assessment Framework. It has been a process with excellent engagement from many Biba members along the way.

“The end product is a richer tool which members can use to ask the relevant questions in a structured way, regardless of the size or business model of the firm or the particular propositions they deliver.

The framework helps firms define the ‘space’ within which fairness is achieved and, where necessary identify the steps so that fair value will be delivered.”

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