Broking Supplement: Taking heads - Matters of opinion

The theme of the Biba 2013 conference is meeting the growth challenge. How do you think brokers can help the financial services industry rebound from the economic crisis?
The insurance industry has always contributed a significant income for the UK and has generally been a beacon of light in dark financial times – we represent 1% of GDP in the UK. We will continue to be an important part of growth within the financial services industry over the next few years. It's great to be part of an industry that has so much potential.
Stuart Reid, chief executive, Bluefin 

Brokers have invariably been a pretty accurate barometer of the UK economy at large. Unlike other sectors of the financial services industry, however, brokers have not sullied their reputations in recent years and their successful financial performance is something to be applauded. Brokers continue to innovate both in terms of finding cover for difficult risks and helping to find capacity to cover new risks that emerge. This innovation is crucial to the UK financial services industry.
Peter Blanc, chief executive, Oval 

The broking community has emerged from the financial crisis unscathed compared with other sectors. This has been achieved by adapting to the challenges it has faced from the evolving distribution landscape and thanks to a strong focus on providing customers with excellent advice. The 'steady as she goes' performance of the sector will continue to contribute towards the gradual recovery of the financial services industry for years to come.
Mark Hodges, chief executive, Towergate 

How are brokers performing in the current economic climate? Have they been able to grow despite the gloomy outlook?
There is no hiding from the impact that the current economic climate has had on the sector. Some brokers are still growing, however, and the difference with these brokers is their ability to adapt to the new circumstances. Schemes and specialisms are key to growth – those who are able to develop their specialist knowledge and products are set apart from the competition. As insurance is a product that every business – in fact every individual – needs, we are well placed as an industry. SR 

Economic headwinds have made it difficult for brokers but growth can still be found particularly in specialisms, wholesale and, in our case, broker networks. Brendan McManus, chief executive, Giles

Some commentators have said ‘sideways is the new up'. I would suggest that that is certainly true of the UK broking community. Most growth in profitability has been through successful cost control rather than top line revenue growth. The challenge now is to continue controlling costs but to drive some real top line activity. PB

The economic climate and heightened competition have led to a challenging operating environment for all UK brokers. Maintaining income levels is an achievement against this market backdrop. At Towergate we have remained focused on maintaining growth through selective acquisitions while using our scale to ensure our customers benefit from fit-for-purpose products at competitive prices. MH

Brokers have to contend with an awful lot – not least an increased burden of regulation, apparently permanent soft market and non-existent investment yields. But they are also a resourceful lot, entrepreneurial by nature. David Ross, chief executive, Arthur J Gallagher

If we have learnt anything from the recent headlines about Aon's 7.5% quota share deal struck with Berkshire Hathaway, it's that the people who control distribution control the market. So I'd rather be a broker than an insurer at the moment.

Regulation of insurance brokers has been one of the biggest issues over the past 12 months. Are brokers being scrutinised too closely?
Brokers don't pose a huge market failure risk but I don't believe this has been reflected in the regulator's view of us. Maybe that will change with the Financial Conduct Authority (FCA). None of us should mind being scrutinised for what we do. It's the risk to the market our sector poses that's been taken out of context in recent years. BM

Given the financial scandals of recent years, it would be unrealistic to expect any reduction in scrutiny for any financial services firm. What we can however demand is both a level playing field in terms of regulatory scrutiny and proportionality in terms of regulatory cost. It certainly appears that larger brokers receive the brunt of the regulatory scrutiny, which is understandable to a point, but the whole broking community is paying a disproportionately high level of regulatory fees compared with our European counterparts. PB

The fundamental problem with regulation is that we never get to the top of the mountain – I accept that larger brokers will always be a softer target but at what point will the needle tip? It won't be long before I have more staff tasked with compliance than selling insurance. 

In any case, we don't invest in governance to comply with the FCA; we invest in governance to become the best possible company we can. The FCA must also be mindful of the fact that, while we all want a well regulated market in the UK, this cannot be at the expense of putting us in an anti-competitive position internationally. DR

How are brokers coping generally with their increased regulatory burden?
The Financial Services Authority always felt that the larger brokers represented the biggest risk. However, it would appear that the FCA is looking more evenly at the industry and as a result mid-range and smaller brokers may feel the regulatory burden more acutely. We may find that this drives further consolidation. SR

I would not describe regulation as a burden. Regulation is part of our rapidly evolving market. Members of our network division are telling us that network support is now more crucial than ever. Brokers are excellent at adapting and innovating. That's why they have been around for so long. MH

We have the good fortune of being big enough to invest in the necessary resources to deal with all the required compliance activity but it must be a dreadful burden for smaller firms to cope with. I'm a firm believer in introducing a threshold under which the regulator should have a specialist unit providing support for smaller companies, rather than taking draconian action against them if they get it wrong when they are trying to get it right.

Not only is it difficult for small firms without specialist staff to understand exactly what they should be doing, the cost of being a regulated company – both through direct fees and the indirect cost of buying in specialist advice – is unquestionably escalating. DR

How would you change the existing Financial Services Compensation Scheme (FSCS) to make it fairer for brokers?
With the recent change that all fines now levied by the FCA are being repatriated to the government, it does mean an increasing cost to brokers in the UK which could be a significant issue over the coming years. The FSCS will pay out in many areas that insurance brokers don't get involved with, such as payment protection insurance, so it would be fairer if those involved in taking those specific risks were the ones who are charged. SR

One word: proportionality. It is completely unfair for brokers in the general insurance sector to have to bear a huge financial burden in respect of products and policies that the general insurance broking sector has never sold. PB

The FSCS continues to be a burning issue. The industry has, through the support of the British Insurance Brokers' Association (Biba), made progress in articulating its concerns around a proposed levy increase but more needs to be done to ensure a correct balance is struck between a system that is fair and one that underpins confidence in the financial services industry. The current FSCS model means brokers are exposed to failures of others. I support the work Biba is doing to seek a separate class for insurance brokers, which would ring fence them from other intermediaries such as credit brokers. MH

How will the broking industry's relationship with the FCA pan out considering chief executive Martin Wheatley's threat to ‘shoot first and ask questions later'?
I have no doubt that Martin will work closely with the industry to ensure that regulation is fair and prudent. I am sure they will not allow a scandal such as PPI mis-selling to happen again and for this they have my full support. SR

I'm certain with a little time and some effort on our part, we can show that our sector is low risk and Mr Wheatley can use his bullets elsewhere. BM

I think this is slightly out of context – Martin Wheatley's clear aim is to protect consumers and in that regard I think we are actually all on the same side of the fence. The FCA's ‘threat' to shoot first and ask questions later is clearly in respect of activities where the FCA spots serious consumer detriment taking place. I actually think that the general insurance broking community has little to be afraid of in that regard as incidents of serious consumer detriment are few and far between when it comes to the general insurance broking community. PB

When I first heard that threat it made my blood run cold – it took me right back to the infamous ‘be afraid, be very afraid' comments of his predecessor Hector Sants. My first instinct was to pack up and leave: I found it deeply unhelpful, utterly ignorant and completely counterproductive. 

This is totally the wrong image for a financial regulator to seek to portray; the FCA should be facilitating business not trying to ambush firms. It also seems to be losing sight of the fact that regulated companies can reasonably expect certain levels of service for the fees they pay. Five years ago, applications that were taking a couple of weeks – if that – to turn around are now routinely taking several months and a tendency towards a ‘computer says no' attitude has crept in.

The FCA should also reflect on how comments like this are perceived, not just in the UK but by potential investors overseas. How do they help in our bid to make London and the UK an attractive, competitive market? DR

What impact has the withdrawal of Macquarie bank from broker lending had on the sector?
Any withdrawal of a funding source is a shame for the sector but for the right business model there is a pretty buoyant market sector out there at present from the mainstream lenders and the non-mainstream lenders. Macquarie's withdrawal will clearly affect the particular niche of the market that they serviced but I haven't noticed any wider effects in our sphere. PB

It has certainly put more business in the domain of mergers and acquisitions, so it's good news for buyers from that point of view. But it is detrimental to those seeking funds to expand and one less investor in the space. It is also a pity as Macquarie is a tremendous institution and the signal it sends out to the sector is not great. DR

Which keynote speaker are you most looking forward to seeing at Biba 2013 and why?
The line-up looks really interesting – clearly Martin Wheatley will be good to hear. I have a personal interest in listening to Hilary Devey as I have always maintained clients in the freight industry. David Miliband, I sense, will still be a force in politics and so will be an interesting speaker but personally my vote has to go to Sir Chris Hoy simply because of the London 2012 games and GB's cycling achievements, which were truly astonishing. PB

Sir Chris Hoy. As a cycling enthusiast I am very much looking forward to hearing Britain's most successful Olympian speak. Besides seeking a few training tips, hearing about how he has harnessed his talent to achieve a remarkable career should serve as a useful lesson for us all in the corporate world. MH

Easy: Sir Chris Hoy. An 11-time world champion, six-time Olympic champion and the most successful cyclist of all time. His talent, determination and leadership have undoubtedly transformed the sport, making his story a compelling one everyone will be keen to hear. DR