Summary: On 8 November, the Financial Conduct Authority (FCA) published details of a market study into the wholesale insurance market. Using its wide ranging powers under the Financial Services and Markets Act 2000 (FSMA), the FCA is seeking to identify any structural competition, consumer or market integrity issues in this market. We take a look below at what the FCA is really interested in and what this might mean for the industry.


The UK’s wholesale insurance market commands very significant revenues, both for insurers / reinsurers and for brokers. With more than $91bn in gross written premium in 2015, the London market is one of the biggest global centres for placing and underwriting large-scale, complex, commercial and specialty risks.

The FCA notes the crucial role that brokers play in this market, to ensure that their clients get the coverage they need at a competitive price.

The wholesale insurance market was last looked at in any detail in 2007 by the FCA’s predecessor, the Financial Services Authority. Since this time, the sector has undergone some radical changes, prompted in part by a prolonged “soft market” in which premiums have continued to decline. The FCA is concerned that these market conditions may have resulted in some broker behaviours (such as increased use of facilities and the provision of additional broker services) that may be restricting competition and preventing the market from operating as well as it could in the interests of clients.

The launch of this market study follows soon after it was announced that the European Commission had seized jurisdiction over the FCA’s high profile competition investigation into aviation and aerospace insurance and reinsurance broking, which hit the news following dawn raids in April of this year. Having lost its ability to scrutinise specific allegations of competition law infringements in the aviation insurance broking sector, the FCA is now using its FSMA powers to carry out a wide-reaching study of the entire wholesale sector.

Focus of the investigation

The FCA has cast its net widely to cover wholesale insurance and reinsurance for large, complex or specialist risks placed by brokers in the London insurance market, with a focus on large corporate clients based both in the UK and overseas.

The market study will explore three key topics to determine how competition is working:

  1. Market power: The FCA is considering whether individual broker firms possess market power and, if so, whether this is harming competition (for example because brokers are using this market power to seek enhanced commission, or to get underwriters to take up additional products and services).
  2. Conflicts of interest: There is concern that a lack of transparency and the asymmetry of information between clients and brokers is resulting in conflicts, where the client may lose out to the interest of the broker. In particular, the FCA is considering the following questions:Do brokers place business within facilities which may yield greater remuneration to the broker, even if this is not in the best interests of their clients?
    1. Are brokers more likely to place underwriting business with insurers that purchase data and other advisory services from them? Do they insist on any reinsurance from an insurer being placed with the same broker even if this is not in the best interests of the client?
    2. Are brokers channelling business to their in-house Managing General Agents to retain a greater share of the premium revenue on risks they place?
  3. Broker conduct: Finally, the FCA will examine certain broker practices that may have an impact on competition. In particular, the FCA will be looking at:
    1. Whether brokers are excluding some insurers by placing risks through facilities, rather than on the open market; and
    2. Whether there has been a dampening of competition between brokers through “tacit” coordination. Specifically, the FCA is looking at whether the sharing of pricing data and other client information via third party intermediaries makes it easier for brokers to coordinate their behaviour. In this regard, the FCA may be influenced by knowledge and experience already gained in its competition investigation in the aviation insurance broking sector.

Timing and potential outcomes

The FCA expects to publish interim conclusions in autumn 2018, with a final report due in late 2019.

If the FCA concludes that competition is not working well, it has wide-reaching powers to intervene, for example by imposing market- or firm-specific remedies. Remedies imposed by the FCA can extend beyond the scope of the initial market study. The FCA’s general insurance add-ons market study, for example, led the FCA to introduce rules to ban “opt-out selling” across all financial services sectors, not just those covered by the market study, from 1 April 2016.

Should the FCA identify potential infringements of other laws, such as competition law, it may open an investigation or refer the matter to other enforcement agencies. Similarly, if the market study reveals regulatory breaches or other improper conduct by specific firms or individuals it could lead to formal investigations under FSMA.

If the FCA concludes that a more detailed study is warranted, it may also refer the sector for a more detailed “market investigation” by the Competition and Markets Authority. The FCA is not afraid of taking this step, having done so in September of this year when it made a market investigation reference for investment consultancy services following its asset management market study. The CMA has a wide range of remedies it may use to address any adverse effects on competition that it identifies during a subsequent investigation, including requiring divestment of a business or assets.

What this means for the industry: an opportunity to engage

The FCA’s terms of reference are open for comments until 19 January 2018.

Separately, we expect stakeholders (including brokers and insurers) to receive detailed requests for information and invitations to roundtable sessions with the FCA in the next few months.