Non-admitted Insurers

In June 2024, the compliance team at the British Insurance Brokers’ Association (BIBA) was approached by the FCA to raise awareness of the Regulator’s concerns in relation to non-admitted insurers. This was the first indication that the FCA’s attention has recently turned to overseas insurers and how UK intermediaries (in the main, Managing General Agents (MGAs), and wholesale insurance intermediaries) may be interacting with them.

What is a Non-admitted Insurer?

The term ‘non-admitted insurer’ appears to have been a description used in the USA for many years, referring to an insurance company that is not licensed in the state in which it operates. This means that it does not have to conform to the same regulations and requirements as admitted carriers.

In the UK, the position is much the same as that described above in the USA. Many millions of pounds of premiums are written by UK intermediaries with non-admitted insurers. This can be for a number of reasons, such as a lack of capacity for certain covers in the UK market, firms operating Group-owned or captive insurers which they have set up overseas, or more competitive pricing from overseas insurers.

The FCA may feel conflicted by this, as recent FCA actions (and clearly linked ripple effects) indicate that the FCA is wary of the use of non-admitted insurance whilst at the same time, needing to ensure the international competitiveness of the UK intermediary market.

In Summary

From a UK perspective, and in simple terms, a non-admitted insurer is an overseas insurer which is not authorised and regulated in the UK and which makes available, creates and enters into (so ‘effects’) contracts of insurance through UK-based intermediaries, either with UK or overseas customers. It is, however, possible, and acceptable (from a regulatory perspective, and in certain circumstances) as far as the FCA is concerned, for UK intermediaries to place business with non-admitted insurers.

If you have questions about non-admitted insurers or are an intermediary with concerns about compliance please get in touch and our regulatory compliance support team will be happy to help.

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Why could non-admitted insurers be an issue?

If the UK-based intermediary is carrying out activity as agent of a non-admitted insurer (and that can be an agent by way of delegated underwriting, binding authorities and even risk transfer arrangements), it is effectively doing it as the insurer, not for the insurer. That being the case, if that activity is carried out in the UK by the intermediary, the insurer itself is likely to be deemed to be carrying out that activity in the UK. Hence, the insurer is ‘onshored’ and comes within the FCA’s and PRA’s remit, but is not authorised or regulated by either regulator. Carrying out regulated financial services activity in the UK without appropriate authorisation is a criminal offence.

In addition, from the customer perspective, they are potentially disadvantaged by not having access to FOS and the FSCS for anything in relation to dispute resolution about, or the financial failure of, the insurer. The insurer may also be subject to a less vigorous solvency regime in its own country than the UK.

The FCA's Approach on Non-admitted insurers

The FCA has recently stopped certain brokers using non-admitted insurers by using (imposing) Voluntary Requirements (VREQs), under which firms agree to take certain action. In imposing these recent VREQs, the FCA is clearly not keen on the use of non-admitted insurers in certain circumstances, but the requirements it has imposed on firms are not preventing the intermediary from using and placing cover with non-admitted insurers. Instead, they are preventing the UK intermediary acting as the agent of the non-admitted insurer rather than solely as the agent of the customer.

The View of the Courts on Non-admitted insurers

Court decisions considering this issue have come to judgements which were based on circumstances and activities which were not, in isolation, activities that firms might consider as being part of the ‘regulated activity’. Courts have, for example, decided that even ‘ancillary’ activities working within certain agreed boundaries can mean that UK-based wholesale insurance brokers are acting as agents of overseas insurers (meaning that the overseas insurers are judged to be carrying out regulated activity in the UK).

Examples of such ancillary activity could be working within agreed guidelines in deciding which risks to place/refer, making recommendation to the insurer to accept the risk or not, dealing with claims notifications within agreed guidelines and instructing loss adjusters, or settling some claims. These can all be seen as contributory factors to the overseas insurer being deemed ‘onshored’.

What should UK intermediary firms do or not do in relation to using non-admitted insurers?

UK intermediaries should take all of the above into account, and not do anything that might be deemed to be part of ‘making the insurance contract happen’ or part of ‘carrying out the contract’. In doing so, they can avoid bringing the overseas insurer into the scope of UK regulation.

The Ripple Effect

Potentially as a result of the FCA’s emerging position, certain retail intermediaries are understood to have started to request significant information from wholesale brokers and MGAs ‘up the chain’ where business has been placed with non-admitted insurers.

Conclusion

Non-admitted insurance is not being prevented from sale in the UK by the FCA, but it is important to be aware of the legalities and regulatory requirements when using or considering using a non-admitted insurer. Insurance intermediaries of all types are still required to meet all regulatory obligations and arrange policies in the customers’ best interests.

Firms may wish to review their placement arrangements to ensure that they are not exposed to this risk, and should seek detailed legal advice if there is any doubt.
 

ICS Can Help

Insurance Compliance Services can assist firms with their considerations with regard to non-admitted insurers. If you have any questions about, or need any support in relation to using non-admitted insurers, we will be happy to discuss how we can help you.

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How Can We Help?

We offer up to two initial consultations without charge, to determine the exact nature of your challenges/concerns. If you would like to try out some of our services before committing we can offer a demo of our Compliance Portal, samples of our Hot TopICS or attendance at one of our Webinars. Thereafter we will agree which of our services are most likely to help you most with your regulatory requirements, agree a package of support (or a one-off project) and submit a proposal for review. Before, or after, you decide to go ahead, we will introduce you to the Consultant(s) who will agree a diary of contact at times to suit you both.

Please call us on 01892 539600, email us at enquiries(at)insurancecompliance.co.uk, or send us a message using the form for more information or to make an enquiry about any of our compliance services.

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