Broker Challenges: Counting the Cost of Regulation

The cost of regulation for insurance brokers, especially small independent firms, is at all-time high.

According to BIBA, direct regulatory costs for brokers are 40% higher than in 2019.  Overall direct and indirect costs are equal to 8.1% of fees and commissions, a burden twice as high as experienced by counterparts in other countries. Add to this rising inflation, a hard market, the limits insurers are putting on volumes, and the rising costs associated with HR, accounting, marketing, and IT, and it’s no surprise to hear that many brokers are exiting the market and stating disproportionate regulation as a primary reason.

This could be highly damaging for the sector, which is largely made up of smaller firms. Brokers arrange over £74 billion of insurance each year, which is 67% of general insurance business and 81% of all commercial insurance business in the UK. However, the number of independent brokers and agents in the UK has declined by 0.4% per year on average over the last five years.

Of course, regulation plays a vital role in maintaining a healthy insurance ecosystem, but it must be proportionate. Something BIBA pointed out at its annual conference in May when concerns were raised that red tape costs have increased exponentially for brokers in the past three years.  

BIBA urged the FCA to proceed with caution when considering the impact of regulation bearing in mind more than one in four employees in smaller firms are focused entirely on regulatory matters. BIBA CEO Graeme Trudgill reaffirmed this in his manifesto in July 2023, stating that smaller brokers are swamped by regulation and that the cost is prohibitive.  

Tackling the regulation challenge

The first challenge for brokers is simply staying on top of regulation and ever-changing compliance requirements. One look at BIBA’s regulation updates page, and it’s immediately clear just what a challenge this is, especially for smaller brokers.    

The Consumer Duty passed earlier this year sets a higher and clearer standard of protection, requiring brokers to put their customers’ needs first. Whilst this is great for industry confidence, it increases complexity for brokers as well as incurring the additional time and costs associated with fair value assessments. And with the Government’s Future Regulatory Framework rapidly taking shape following royal assent of the Financial Services & Markets Act in June, brokers can expect a raft of new reforms in the coming months and years.  It’s vital they can proactively understand and adhere to regulatory updates to avoid penalties, maintain their licences, and build trust with their clients.   

A data-driven approach means brokers will never be blindsided by significant changes to regulation. Likewise, access to real-time customer information and insights ensures brokers gain a holistic view of each customer's financial situation, group structure etc. and can be alerted to any risk profile changes that could impact their ability to achieve their compliance requirements.

It's also important for brokers to look for opportunities to drive growth to offset the cost of regulation. Acquiring new business and retaining clients are two of the most important aspects of sustainable growth for any insurance broker. By leveraging data-driven insights, brokers can identify new opportunities and build strong, long-term relationships that drive growth and revenue.  

Instead of counting the cost of regulation, brokers can drive growth when times are tough by taking a smarter approach.

The smartest way to tackle the cost of regulation and drive growth

Introducing SmartBroker™. SmartBroker™ is democratising customer intelligence for the independent broking sector by enabling brokers to identify new opportunities and build long-term relationships that drive growth and revenue by leveraging data-driven insights.​

Benefits of Smart Broker:

• Prospect with precision​ - Gain a complete view of the markets that matter to you, segmented by the attributes of your most profitable customers.
• Prepare better underwriting submissions​ - Leverage data to remove knowledge gaps and ensure you produce comprehensive submissions every time.
• Data-driven insights to tailor outreach​ - Real-time news insights will give you the right things to say at the right time and help become a trusted advisor to your clients.
• Increase client retention​ - Don’t get blindsided by significant changes to your client’s business and risk portfolio at renewal. Be alerted to changes, to help mitigate risks sooner.

FullCircl is proud to support many independent brokers, as well 9 of the top 10 UK brokers, 40 of the top 50.  

To find out how SmartBroker™ can support your business, speak with one of our insurance experts to arrange a demo, see pricing and get started.