The Financial Conduct Authority (FCA) has today launched an investigation into London’s insurance broker market amid concerns that clients are paying too much.
It said that “significant changes” in the wholesale insurance sector over the last decade had prompted it to explore whether brokers are using their bargaining power to benefit clients.
The London insurance market controls more than £68bn in gross written premium, with the FCA warning the way it functions can have a wide-ranging impact on the broader economy.
“If businesses cannot get appropriate cover or pay more for services than they should, it can impact on their ability to operate and grow,” FCA executive director of strategy and competition, Christopher Woolard, said.
“Brokers play an important part in ensuring clients get appropriate coverage at good value, however, following significant changes in the sector, we are looking at the dynamics to ensure competition is working well.”
The regulator said that a prolonged soft market with declining premium rates had put pressure on brokers, and that many had developed new services in order to deliver efficiencies.
However, it warned this could potentially give rise to a whole range of competition issues, such as larger brokers using their market power to oblige customers to pay for their services, even if they don’t need them.
In addition, there has been a significant increase in the amount of brokers placing business in facilities – even though it may not be the best option for their clients – as it often leads to enhanced remuneration.
This could ultimately have the effect of limiting the number of insurers underwriting business in a particular sector, or impact the selection process, putting clients at a disadvantage.
“Effective competition is important in this sector since even modest improvements could significantly benefit the economy as a whole,” the FCA said.
“We therefore believe it is an appropriate time to explore how competition is working and whether it could be made to work better in the interests of clients.”
The regulator has asked for responses to its study by 19 January 2018, and intends to publish the findings in a report in the autumn of next year.