New Legislation puts Squeeze on Insurance Brokers
Posted by Fleur Revell
The introduction of new legislation puts squeeze on insurance brokers and is looking to force some out of business. The new regulations that are being introduced through the FA Act and the FSP Act are making it highly difficult for small insurance businesses to survive.
The introduction of a new set of insurance regulations will force some independent brokers out of business according to an industry expert.
The new regulations in the Financial Advisers Act and its companion the Financial Service Providers Act (the FA Act and the FSP Act) and the more demanding compliance and complaints legislation, along with industry changes following the Canterbury Earthquakes, is making it difficult for small insurance businesses to survive.
Managing Director of Apex General Ltd James McGhie says under the new scheme, small businesses are struggling and solo traders will not be able to manage without the support of a larger business or group.
Already his company Apex has purchased three smaller firms in the past few months where independent brokers with up to 40 years industry experience have opted to come under the umbrella of a larger firm with established infrastructure capable of coping with new industry demands.
McGhie says complaints are on the rise as customers, generally those dissatisfied with the handling or settlement of a claim, can now access a free disputes resolution service that all financial advisers must belong to, due to the new legislation.
This will lead to increased professional indemnity claims and therefore increased compliance and insurance costs. Just another way in which the smaller players come under more pressure, he says.
“The cost of resolving complaints under the new regulations could easily exceed the value of the claim which, for a small brokerage can lead to financial hardship as the broker himself is tied up in the time consuming resolution process,” says McGhie.
Many insurance companies are looking to trim their distribution channels and that means smaller businesses supporting these insurers or not being able to use them at all, says McGhie.
“As insurers’ compliance costs are increasing and they can no longer deal with everyone as they used to, so unless you are big enough to support a number of insurers you will be forced to use only one or two, reducing the choice for clients.”
McGhie says small operators will need to band together to form medium sized agencies. He also recommends they link with like-minded business networks or groups like Insurance Advisernet, of which Apex General was a founding member.
This independent organisation was formed to allow smaller insurance brokers to compete with the larger national and international brokers by being part of a national buying group, at the same time maintaining their independence and local presence.
“Insurance Advisernet has also allowed new businesses with younger brokers at the helm to establish their own company but with a safety net of support. It also maintains a trust account for all client premiums, audited twice a year which means security for clients and insurers alike.” he says.
McGhie says Apex General has also introduced a number of state-of-the-art systems and processes which has allowed it to concentrate on its customers and continue to thrive despite industry shifts.
McGhie says its tactics such as these employed by smaller and medium players which will see them survive as bigger companies also innovate by buying up smaller businesses and consolidating their position.
For more information visit www.apexgeneral.co.nz