The British Insurance Brokers’ Association (BIBA) has published new research conducted by London Economics which shows that regulatory costs account for 5.2% of insurance premiums collected.
The analysis breaks this down into 3.3% attributed to insurance brokers and 1.9% to insurers, indicating a greater regulatory burden on brokers despite their lower systemic risk.
The study evaluated both direct and indirect regulatory costs across a sample of BIBA brokers and insurers, covering personal and commercial lines. Direct costs include fees and levies paid to regulators, while indirect costs encompass internal compliance expenses such as staffing and outsourced services.
The findings build upon a previous 2023 study, which reported that direct regulatory costs for brokers had increased by 40% since 2019. That research found total regulatory costs – both direct and indirect – equalled 8.1% of insurance mediation fees and commissions.
This latest study is the first to quantify regulatory cost impacts in relation to premiums paid by policyholders. BIBA has pointed to the figures as indicative of what it views as a disproportionate regulatory cost borne by brokers.
Amid undergoing significant regulatory changes, with a focus on balancing consumer protection, market competitiveness, and financial stability, insurance companies and consumers alike are found to be liable for some of the costs related to these developments.
Following the FCA's ban on "price walking" in 2022, where new customers were offered lower premiums than renewing customers, premiums have risen for both new and existing policyholders. This has led to higher overall costs for consumers.
Compliance with new regulations, such as the Consumer Duty and climate risk assessments, has increased operational costs for insurers. This includes investments in data collection, system upgrades, and staff training.
The Solvency UK reforms aim to free up capital for insurers, potentially allowing for more investments in infrastructure and green projects. However, the transition requires adjustments in capital management strategies.
New rules require brokers to ensure that commission structures do not conflict with the best interests of clients. This may affect revenue models and necessitate changes in business practices.
BIBA chief executive Graeme Trudgill stated that the cost of regulation is too high and does not reflect the risk level associated with brokers.
“We strongly believe that the burden of regulation can be reduced, and we are working closer than ever with the FCA on a number of opportunities to achieve change,” Trudgill said. “Our Manifesto outlines six key asks for the regulator and we are pleased that they are collaborating constructively with us to make a difference for members.”
London Economics senior partner Patrice Muller said the research shows a substantial portion of both broker and insurer costs, and by extension customer premiums, stem from regulatory requirements. He said simplifying regulations could reduce costs and benefit consumers without compromising necessary protections.
According to the research, indirect regulatory costs for brokers averaged 3.2% of premiums collected. For insurers, the figure stood at 1.6%.
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