FSA (Financial Services Authority) insurance regulations threaten to damage the retail motor trade and restrict consumer choice, says the Retail Motor Industry Federation.

Matthew Carrington, RMI chief executive, launched his attack as the organisation published the results of a survey of motor retailers, which asked how the new regulations have affected their businesses.

"The results of this research confirm the sector's worst fears about the impact of the FSA regulations on the automotive insurance market," said Carrington.

The survey found the annual cost of compliance with the new regime is, on average, £4,600 per outlet, a sum which grossly outweighs the £1,000 worth of insurance sold by 20% of dealers each year. The fact that three quarters of retailers make annual insurance sales of less than £20,000 further highlights the cost/benefit imbalance, says the RMI.

The survey also found:

  • 89% of dealers say the regulations have increased the time it takes to sell insurance
  • A quarter report a decline in income from insurance sales
  • 53% say the regulations have given little or no benefit in relation to the cost of compliance.

    The RMI says its research suggests many dealers are questioning the business sense of remaining in the insurance sales market.

    Carrington said: "If nothing is done to ease the burden of compliance that exists under the current regime, we could see dealers leaving the insurance market in significant numbers. If this happens, those dealers could risk losing a certain amount of core business, as many consumers have come to expect to be able to purchase insurance at the same time as they buy their vehicle. This would also have a damaging effect on consumer choice.

    "The RMI is not advocating wholesale change, but we do believe that a lot can be done within the existing framework to bring the scope of regulations into line with the size of the market. We will be using this research as evidence in our discussions with the FSA."