MANY Bolton companies which provide insurance could close within months because of new legislation.

The legislation which comes into force in January will regulate the insurance industry and affect every business that is involved in arranging insurance cover.

This includes insurance brokers, companies and agents, as well as non-traditional outlets such as supermarkets and electrical appliance retailers.

With five months to go to the deadline, concerns within the insurance industry are rife as many companies fear they will be unable to meet the new requirements.

The Financial Services Authority (FSA) regulations include staff competency and training, fair treatment of customers and provision of client information, plus changes to complaints procedures, solvency requirements and the handling of client money. There is concern that the FSA, which will have the power to close non-compliant businesses and fine chief executives, will seek to claim an "early scalp" to show that it is taking its role seriously.

According to National Economic Research Associates (NERA), the cost of compliance to the insurance industry will be about £197.4 million.

Research commissioned by Bolton insurance broker Opus shows that insurance providers and brokers nationwide are being faced with periods of massive disruption and soaring costs as they strive to become fully compliant by January 2005.

From sole traders to large corporations, only 16 per cent of firms surveyed faced no interruption by the changes.

More than one-third of companies reported high stress levels among staff, as well as disruption to daily routines.

Costs are also an issue with smaller firms having to spend more than £2,000 to meet requirements, with the bill for larger companies reaching more than £20,000.

Many of the smaller brokers have clocked-up extra hours making the necessary changes in-house. Those that do not meet the regulatory deadline risk closure, merger or acquisition. Larger companies have also been forced to recruit extra personnel to deal with the regulatory changes.

Views on whether the changes will be beneficial or not are divided. Fifty per cent believe the legislation will have little or no effect as not all companies -- such as travel agents selling holiday insurance -- are subject to the regulations.

Andy Cork, Opus group compliance office, said: "The sustainable future for the industry relies on the successful implementation of reforms. At Opus, we have found that good forward planning is the key to successfully adjusting to regulatory changes. As a result, we are currently on track to meet the deadline. We appreciate the challenges that some of the smaller brokers are experiencing but not regulating the industry would undoubtedly make for a precarious environment in the future.