Concerns have been raised that contractors will face higher administrative overheads when an insurance directive policed by the Financial Services Authority is introduced next month
Under this scheme all insurance intermediaries, which could include contractors, must be registered with the FSA and will probably incur additional costs in complying with its standards.

Roger Watts, building surveying faculty chairman at the RICS, said that because major contractors carry out work paid for by insurance companies, they could fall within the scope of the regulations contained in the European Union Insurance Mediation Directive. He added that quantity surveyors should also be wary.

Watts said that in practice, the directive would most likely affect contractors that deal with flood damage and fire damage. He said: "They are likely to be doing some regulated activities with loss adjusters in connection with such projects, which are also regulated.

"If these regulations come into force there will be hideous consequences. As contractors will need to be authorised, they must comply with the FSA rules."

Under the legislation, "regulated activities" are to include advising on an insurance contract, entering into an insurance contract as agent for a third party, arranging for a third party to enter into an insurance contract and assisting in the administration of an insurance contract.

Watts noted that firms would be required to pay a compliance fee to the FSA and would be liable for other charges. A firm that was affected by the directive would also have to meet certain financial requirements, such as maintaining minimum levels of capital and having professional indemnity insurance.

Watts said that, in addition, the firms would have to abide by the insurance code of business. Staff would have to receive training in insurance activities and firms would be required to have documented systems and controls in place.