General insurance brokers: acting for commercial customers

Understand what we expect of general insurance brokers who arrange premium finance plans.

Published March 2013

Our guidance

Arranging premium finance plans alongside general insurance contracts is  an increasingly important source of revenue for many insurance brokers.

Firms should be aware that our rules in ICOBS apply to insurance mediation activities. PRIN and some rules in SYSC apply when you carry on ancillary activities.

Our regulatory requirements

Where you arrange premium finance as part of a contract of insurance, we generally regard this as part of the regulated activities you perform for your customer. We expect you to ensure that your business practices, sales approach and any documentation you provide to the customer are consistent with all your regulatory obligations under PRIN, SYSC and ICOBS.

Relevant Handbook sections

It is important you are aware of the following sections of the FCA Handbook and understand the impact that they may have on your practices:

PRIN 2.1.1R

Principle 6 – Customers’ interests: A firm must pay due regard to the interests of its customers and treat them fairly.

Principle 7 – Communications with clients: A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading.

Principle 8 – Conflicts of interests: A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.

SYSC 10.1.3R

A firm must take all reasonable steps to identify conflicts of interest between itself and its clients.

SYSC 10.1.7R

A firm must maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of its clients.

ICOBS 4.4.1R(1)

An insurance broker must, on a commercial customer’s request, promptly disclose the commission that it and any associate receives in connection with a policy.

ICOBS 4.4.2G

An insurance broker should include all forms of remuneration from any arrangements it may have. This includes arrangements for sharing profits, for payments relating to the volume of sales, and for payments from premium finance companies in connection with arranging finance.

Requirements

You should also be aware of the following requirements to clearly disclose the price of the insurance policy (separate to any additional costs associated with premium finance):

ICOBS 6.1.5R

A firm must take reasonable steps to ensure a customer is given appropriate information about a policy in good time and in a comprehensible format so that the customer can make an informed decision about the arrangements proposed.

ICOBS 6.1.6G

The appropriate information rule applies pre-conclusion and post-conclusion, and so includes matters such as mid-term changes and renewals. It also applies to the price of the policy.

Summary

Firms need to ensure that they:

  • have appropriate processes and controls to identify if the arrangement of premium finance is part of their regulated activities
  • know how the Handbook applies when you arrange premium finance, either as part of your regulated activities or as a connected or ancillary activity
  • mitigate the potential risks to customers from conflicts of interest when you arrange premium finance, according to Principle 8 and SYSC 10.1.3R and 10.1.7R, and
  • give clear and fair information to customers that is not misleading (including about the price of the insurance policy), according to Principle 7)