Capacity is tight and the winning quote is unrated. The checks the FCA expects, what FSCS and FOS cover, and how to record the client decision.
It happens most often in the hard corners of the market: a trade the standard markets have stepped back from, a loss-hit renewal, a scheme where the incumbent has pulled capacity. Three quotes come back. The one that works on price and terms is from an insurer with no financial strength rating.
The question is not whether you are allowed to place it. You usually are. The question is what you have to do before you recommend it, what you have to tell the client, and what your file will look like if that insurer is in run-off two years later and the client asks why nobody mentioned it. This is one of the few placement decisions where the broker's own exposure is materially larger than the commission.
An unrated insurer is one that has not been assigned a financial strength rating by an agency such as AM Best, S&P, Moody's or Fitch. That is all it means. It is not a statement that the insurer is weak, and it is not a statement that it is unauthorised.
Ratings are paid-for opinions. Insurers commission them, and plenty of perfectly solid carriers decline to — because the cost is disproportionate to their size, because their distribution does not demand it, or because their domicile does not make it customary. Conversely, a rating is a point-in-time opinion that can be withdrawn or downgraded quickly, and rated insurers have failed.
So "unrated" is not a verdict. It is the absence of a shortcut. Where a rating exists, a broker can lean on somebody else's analysis. Where it does not, the analysis is yours to do — and the FCA's position is that you should be doing it either way: it expects brokers to demonstrate that they have carefully considered the insurers they place their customers' business with.
The FCA's published expectations for broker due diligence on insurers give a workable checklist. None of it requires an actuary.
The FCA also offers the plainest test in the guidance: place business with an insurer where you would be happy to be a policyholder yourself. It is not a rule, but it is a good sentence to have in your head when the commission is attractive.
Two questions decide what happens to your client if the insurer fails, and both are worth answering in writing before the recommendation goes out.
| Question | Why it decides the outcome |
|---|---|
| Is the insurer authorised by the PRA in the UK? | FSCS protection requires that the failed firm was PRA-regulated. A policy written by an insurer authorised elsewhere and operating into the UK on another basis may sit outside the scheme entirely, which changes the client's downside from "reduced" to "nothing". |
| What class of business is it? | Where FSCS protection applies, compulsory general insurance — third-party motor, employers' liability — and long-term insurance are protected at 100%. Professional indemnity and income protection are also at 100%. Other general insurance, including property, public liability, travel and warranty, is protected at 90%. |
Note what this means for a commercial client: an employers' liability policy with a failed but PRA-authorised insurer is a very different position from a property damage and business interruption policy with the same insurer. Saying "the client is FSCS protected" without saying at what percentage and for which sections is not a complete answer, and eligibility for businesses is itself limited by size.
ICOBS 6.1.5R requires that a customer is given appropriate information about a policy in good time and in a comprehensible form, so that they can make an informed decision, with the level of information reflecting the complexity of the policy and the type of customer. An insurer's financial standing is exactly the kind of information a client cannot assess for themselves and would want.
The FCA is explicit that brokers should clearly detail the name and address of the insurer in the literature provided to customers, and that clients should understand what it means if an insurer has a rating, or is unrated. Under the Consumer Duty, for retail clients, the test is not whether you disclosed but whether the client actually understood well enough to make an informed decision.
What a defensible file looks like:
That last point is where the practical difficulty usually sits. The discussion happens by phone or, increasingly, in a chat thread — the client asks "is that one alright?", the adviser explains, the client says "yes, go ahead", and none of it reaches the file. A written thread is a genuine advantage here, because the explanation and the instruction are captured in the client's own words at the moment they were given. It is not, on its own, a durable medium for the formal disclosure documents — send those properly and reference them in the thread. The same discipline applies to the demands and needs statement when the sale happens over WhatsApp.
In ORIS the placement conversation stays on the customer record with the rest of the client's history, so the exchange about the carrier sits next to the renewal thread and the claims thread rather than in someone's phone, and the record can be exported as CSV when a file review or a complaint needs it. There is no integration with your broking system — the export is the bridge — but the conversation exists and is retrievable, which is the part that fails most often. If you want to see how that looks on a live book, book a walkthrough.
One last connection worth making: the fair value work you already do under PROD 4 asks whether the total price is reasonable relative to the benefits. A cheaper premium from a carrier whose claims-paying ability is materially less certain is a benefits question, not just a price question — and the two assessments should agree with each other. More on placement and selling in our sales topic hub.
Yes. You are not obliged to recommend a market you are not comfortable with, and many firms operate a written policy setting a minimum standard — a rating floor, or a documented approval process for exceptions. Where the client instructs you to proceed with a carrier that falls below your own standard, record the advice you gave, the client's instruction and the fact that you acted on instruction rather than recommendation. A stated policy applied consistently is easier to defend than case-by-case judgement.
No rule requires a specific signed form. What matters is that appropriate information was given in good time and in a comprehensible form under ICOBS 6.1.5R, and for retail clients that the Consumer Duty understanding standard is met. A clear written explanation followed by a clear written instruction from the client will usually serve better than a signature on a paragraph nobody read. Keep both the explanation and the instruction.
Rating and FSCS protection are unrelated. FSCS protection depends on the failed insurer having been PRA-regulated, not on whether an agency rated it. A UK-authorised unrated insurer can be within the scheme; a highly rated insurer authorised outside the UK and writing on another basis may not be. Check authorisation and the class of business, and state the percentage that applies rather than saying "covered".
Tell affected clients promptly and set out the options — remain, remarket mid-term, or wait for renewal — with the cost and cover consequences of each. If the insurer enters an insolvency process, the administrator and the FSCS will set the process for existing claims, and your job becomes explaining it and chasing on the client's behalf. Segment the book by carrier so you can identify everyone affected in minutes rather than by memory; the exercise is close to the one in our note on an insurer that withdraws capacity.
Annually as a baseline, tied to publication of the insurer's financial reporting, and immediately on a trigger: a rating action, a change of auditor, late filings, adverse market commentary, or a noticeable deterioration in claims handling reported by your own team. Record the date of each review and what changed, because the file question after a failure is not whether you checked once but whether you kept looking.
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