(Reuters) – The UK's wholesale insurance broker got a clean health food from the market watchdog on Wednesday, providing some relief for an industry that already spends millions of pounds on Brexit.
London's insurance market, spanning the Lloyds London market and brokers like Aon PLC, Willis Towers Watson PLC, Jardine Lloyd Thompson Group PLC and Marsh Ltd. controlled $ 60 billion ($ 78 billion) in gross premiums in 2017.
The Financial Conduct Authority announced a review in November 2017 and said it was concerned about how big players would do business to earn larger fees.
But on Wednesday, the FCA said in a statement that it had "not found evidence of significant levels of damage that deserves the introduction of urgent action" and ended its investigation.
However, the watchdog said that areas for improvement were identified, including how brokers deal with conflicts of interest, the information they disclose to customers and contractual agreements between brokers and insurers, which in a small number of cases have the potential to restrict competition.
The Swedish Competition Authority considered that it intended to follow up bilaterally with the small number of companies that have clauses in their agreements with insurers who could potentially restrict competition, which entails an expensive, sector-wide reform.
Steve White, head of the British Insurance Brokers Association, said there were "many positives" in the FCA report, such as the watchdog dealing with any follow-up questions
The British Insurers Association said it was right for the FCA to keep track of the market to promote transparency for customers and to act on conflicts of interest. [1
This should be cheaper for customers, but can leave insurance companies with little scope to dictate their own terms. FCA's conflicts of interest should be better managed.
London safe for now
The Competition Authority found no evidence of excessive profitability and said that the largest brokers do not seem to consistently earn highest commission rates or customer fees, where customers can exercise a reasonable limit for brokers.
"This is welcome news for brokers who have worked hard to transform their business models into developed and uncertain markets," said David Miller, consulting partner at KPMG LLP Consulting, said.
There was also no evidence that " pay-to-play "exists on a scale that motivates intervention, a reference to brokers forcing customers to buy consulting services in exchange for insurance business.
FCA said the UK's planned departure from the European Union next month has led to smaller companies releasing out of the market, which may reduce competition and choice in the future.
"Given that London's toric reputation and specialist knowledge drive customer demand, it is unlikely that it will be affected by EU exit, at least for larger and more complex risks , FCA says.
Lloyds of London, which has opened a Brussels hub, is dictating paper and digitizing its business, which could also reduce the potential demand for brokerage firms, FCA says.