On 8 November 2017, the FCA launched its Wholesale Insurance Brokers Market Study, which is aimed at furthering the ambition of the FCA to ensure that London remains as an international centre for insurance.

The purpose of the study is to assess the role of brokers in the wholesale insurance market, and to ensure that the market works in such a way as to provide purchasers with access to appropriate coverage at fair value. It arises from a concern that the manner in which wholesale brokers operate in London results in either unnecessarily expensive premiums, or in driving insurers out of the London market.

The study's terms of reference identify three topics which it will cover:

  1. Topic 1: "Market power" – do individual broker firms possess market power and if so is this harming competition?
  2. Topic 2: Conflicts of interest – what conflicts, if any, exist in the sector and what is their effect on competition and firm conduct?
  3. Topic 3: Broker conduct – to what extent does this affect competition in the broker sector? Could some actions risk excluding firms from the underwriting sector?1

Topic 1 will look into concerns raised by some stakeholders that some broking firms may hold a disproportionate level of power in the market enabling them to charge higher commissions, or to get underwriters to sign up to facilities.

Topic 2 will consider matters such as the effect of broker facilities on the choice of underwriters. The FCA has said it will consider "if there is evidence that brokers are placing business within facilities, which may yield greater remuneration to the broker, even if these are not in the best interests of their clients" and whether "pay-to-play agreements exist... and how they may exacerbate potential conflicts of interest”. The FCA is also interested in "tying of reinsurance" to underlying insurance and the practice of broker owned MGAs, both of which may potentially give rise to conflicts of interest.

Topic 3 will look at allegations that some brokers exclude insurers or dampen competition by tacit cooperation with other broking firms.

Responses to the study have been requested by 18 January 2018 with an interim report scheduled for the autumn.