Britain is following Australia into a complete overhaul of the general insurance industry, with the Financial Services Authority (FSA) announcing that it will begin regulating general insurance from January 14, 2005.

Treasury Financial Secretary Ruth Kelly said the timeframe “will allow sufficient time for the FSA and the insurance industry to prepare for this major change in regulation”.

Like Australia, the FSA – which took over regulatory duties from the industry-operated regulator last year – will set standards for insurance-sellers. Some approaches will be different, however, and that’s where brokers are reacting with alarm. The FSA says it wants to class all businesses with a turnover of less than a million pounds ($2.7 million) as “private customers”.

Brokers fear that will tip most small business into this classification, as 99% of businesses employ less than 15 people. “Private customers” will be accorded the maximum consumer protection, with a written “demands and needs statement”, a “suitability statement” and a “pre-commitment disclosure” with all the terms and conditions and cancellation conditions – all before a commitment to buy the product is taken. The more complex the product, the greater the paperwork involved.

Grant Ellis, MD of Britain’s Broker Network, told the UK Insurance Times that complex commercial policies “will become a nightmare”.

“And to what end? Recent research suggested that 94% of SMEs were satisfied with their insurance arrangements,” he said. “And other research [by the British Insurance Brokers Association] suggests that less than 1% of complaints about the insurance sector emanates from SME customers.”

Commentators have suggested the big challenge for British brokers will be designing procedures that are efficient and meet all the regulator’s requirements. And they haven’t even started focusing on training and compliance yet…