Regulation costs 5.2% of insurance premiums

New research commissioned by the British Insurance Brokers’ Association (BIBA), and undertaken by London Economics, reveals that regulation costs amount to 5.2% of insurance premiums collected. This breaks down as 3.3% for insurance brokers, and 1.9% for insurers, with costs being higher for brokers despite their lower systemic risk.

London Economics analysed both the direct and indirect costs of regulation borne by a sample of BIBA brokers and insurers covering both personal lines and commercial business. Direct costs of regulation include the fees and levies paid, and indirect costs include expenses incurred to comply with regulations such as the internal costs of staff and procured compliance services.

The research builds on a study from 2023 which found that direct regulatory costs for brokers are 40% higher than in 2019, and overall direct and indirect costs are equal to 8.1% of insurance mediation fees and commissions.

This new research reveals, for the first time, the impact of regulation costs in relation to insurance premiums paid by clients.  BIBA believes these figures are further evidence of the disproportionate costs of regulation that insurance brokers face.

Graeme Trudgill, BIBA Chief Executive, commented: “The cost of regulation is too high.  It is disproportion to the risk that brokers pose, and now, not only can we demonstrate that it is expensive for brokers, but that high regulatory costs are impacting premiums by 5.2%.

“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.  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.”

Patrice Muller, Senior Partner at London Economics, added: “Our research highlights that a significant proportion of insurance company and broker costs — and, by extension, consumer premiums — can be attributed to the current regulatory framework. These findings point to a clear opportunity: by streamlining existing regulations and regulatory processes, there is the potential to deliver meaningful consumer benefits through lower premiums, while maintaining necessary protections.”

For insurance brokers indirect regulatory costs, measured as a percentage of collected premiums, average 3.2% of collected premiums. For insurers, the indirect costs were identified as lower than those for brokers at 1.6% of collected premiums.

ENDS

Notes to editors

 For further information please contact:

BIBA press office:
Pam Quinn, Head of Communications
07562 616686
[email protected]

Leighann Forsyth, Deputy Head of Communications
07917 738727
[email protected]

1. The definition of direct cost and indirect costs borne by brokers and insurers

The direct regulatory costs borne by insurance brokers include:

• Fees by the Financial Conduct Authority (FCA) (including consumer credit)
• Financial Ombudsman Service (FOS) levy
• Financial Services Compensation Scheme (FSCS) levy
• SFGB Money Advice Levy (MaPS)
• Illegal Money Lending Levy
• Other fees and levies reported by insurance brokers (Economic Crime Levy, ICO fee, etc).The direct regulatory costs borne by insurers include:
• Fees levied by the FCA (including consumer credit)
• FOS levy
• FSCS levy
• Financial Guidance Levy (FGL)
• Prudential Regulation Authority (PRA) fees
• Illegal Money Lending (IML) levy
• Financial Reporting Council (FRC) fees
• Economic Crime levy

The indirect regulatory costs borne by insurance brokers include:

• The costs of various compliance services procured from third parties such as  law firms, accounting/audit firms and other firms specialising in compliance issues.
• The internal costs of various staff dealing with compliance issues including:
• The cost of staff dealing with compliance issues.
• The cost of brokers dealing with compliance issues.
• The cost of management dealing with compliance issues.
• The cost of visits/inspection by regulators.
• The cost of addressing compliance enquiries.

The indirect regulatory costs borne by insurers include:

• The costs of various compliance services procured from third parties such as: Law firms, accounting/audit firms and other firms specialising in compliance issues
• the internal costs of various staff dealing with compliance issues. These internal costs include:
• The cost of staff ensuring that insurer complies with various laws and regulations.
• The compliance cost of employees involved in direct sales of insurance products.
• The cost of management dealing with compliance issues.
• The cost of visits/inspection by regulators.
• The cost of checking existing and new insurance products.
• The cost of monitoring brokers.

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1. About the British Insurance Brokers’ Association

 The British Insurance Brokers’ Association (BIBA) is the UK’s leading general insurance intermediary organisation representing the interests of insurance brokers, intermediaries and their customers.

BIBA membership includes around 1800 regulated firms, employing more than 120,000 people.

General insurance brokers contribute 1% of GDP to the UK economy; they arrange 77% of all general insurance with a premium totalling £105.5bn and 94% of all commercial insurance business.

BIBA is the voice of the sector advising members, Government, regulators, consumer bodies and other stakeholders on key insurance issues.

The BIBA Conference is Europe’s largest insurance exhibition and hosts over 9000 insurance professionals and 230 exhibitors annually.