An interesting article in the Insurance Age this week about the potential impact of the LASPO Act on Broker commissions from BTE.
In an article by Martin Firel and Andrew Pearce, they examine the impact of the end to recoverability of ATE premiums and what that means to BTE products moving forwards. One of the aspects examined is the lack of requirement going forwards for adverse costs cover in motor BTE, leaving the only risk as own disbursements. If that’s the case then what is the underwriting cost or value of any motor BTE product? The answer doesn’t seem to be forthcoming from BTE Insurers, none of whom want to reveal their hands at the moment.
What it does lead to is questions about the way in which BTE has been sold in the past. The article claims that its widely known in Broker circles that BTE was a product that could be bought in for as little as 10p and sold for as much as £15. The value of the product extends much further than that to Brokers however, because it provides them with control of the claim and therefore access to the subsequent Referral Fees. In terms of underwriting risk is widely acknowledged that this risk can be controlled through Panel Firms and that the product has really been used as an income stream for many Brokers.
Issues of ethics and Treating Customers Fairly are raised in the article. Mike Cranny of compliance consultancy Create Solutions sees similarities between the BTE market and the PPI market given that the product delivers more benefits to the seller than the buyer. An alarming prospect for the Broker market.
The article goes on to ask what next for Brokers who have derived significant income streams from BTE for many years. For many the impact will be significant and may require them to charge clients existing commissions or fees to replace revenue. In the post LASPO world this doesn’t sound like it will have a positive impact on consumer motor premiums – as intended by the Act through its mechanisms of removing ATE recoverability and introducing the Referral Fee Ban. Will the Broker market be another area where policy intentions fall well short of future reality?