There is place

The prediction comes from Keith Young, MD of First Link, who says for smaller brokers 2004 will be a time for reassessment, with FAIS acting as a catalyst.

Young: "For smaller brokers FAIS is a catalyst. Some will exit the industry. Others will re-dedicate themselves to the industry.

"The downside to FAIS is costs. It necessitates on-going investment in systems, training and record-keeping. It is also expensive in management time as compliance has to be actively managed.

"FAIS will encourage industry consolidation as economies of scale become vital."

On the other hand, Young says: "FAIS rewards greater professionalism and encourages brokers to invest in people and their knowledge base.

"Higher standards are good for the public and all brokers who have the systems, knowledge and people necessary for truly professional service."

The industry has already witnessed dramatic consolidation among major insurers who underwrite risks and provide underlying cover to the public and SA business.

Three years ago there were more than a dozen underwriters. Today there are only four big players.

Young believes the consolidation focus will now fall on brokers. Some smaller brokers will look for the 'exit'. Others will look for partners.

The process of partnership formation, mergers and acquisitions is already under way.

But consolidation does not mean small independent brokers are doomed, says Young.

He adds: "There will always be a place for highly personalised service. However, in future the small independent broker will have to be highly efficient as well. FAIS compliance is onerous. Cost control and total professionalism are vital."

Direct insurers who cut out the broker will not put the intermediary out of business. There is room for various service delivery models in First Link's view. Young even predicts a long-term swing back to knowledgeable brokers in line with the global trend to re-intermediation.

Innovation will also underline the need for the intermediary.

Young points out: "Innovation highlights the broker's positive contribution. Almost invariably, product innovation is driven by brokers, responding to the needs of customers. The broker is always the innovator and will always have a role."