FCA publishes insurance broker wind-down plan study

FCA has published the results of its review of how well general insurance brokers assess the adequacy of their liquidity for orderly wind-down.  During early 2022, it conducted a review of 10 insurance brokers, mainly London market and commercial insurance brokers, and found significant divergences in their practices.  It recommends that all firms, not just insurance brokers, can benefit from reading its conclusions.

FCA found that most of the firm had both wind-down planning arrangements and a formal wind-down plan in place, but that some had not updated these plans for some time. Generally, not many firms showed consistent good practice, so FCA has concluded that, overall, firms need to improve.

Some of the good practices FCA found included:

  • clear identification and regular reviews of the risks in their business models and good consideration of the harms that could flow from these risks and how they could be mitigated;
  • detailed and appropriate cashflow projections and assumptions for wind-down;
  • stress testing and reverse stress testing embedded in the risk management framework of the firm, with reverse stress testing used to identify triggers for wind-down planning, and
  • risk management frameworks that include risk metrics and forward-looking management information.

Weaknesses included:

  • poorly embedded risk management frameworks which lacked risk metrics and monitoring and had poor forward-looking MI;
  • inconsistent or incoherent reporting of risks at different levels in an organisation;
  • lack of information on how the firm assessed the effectiveness of its risk monitoring and mitigation work;
  • failure to develop stress testing and stress scenarios; and
  • poor cashflow modelling.

FCA has given individual feedback to firms and will continue to monitor the adequacy of arrangements.


Emma Radmore