Saturday Interview: Eric Galbraith, chief executive of the British Insurance Brokers Association, believes hard times ahead mean industry can expect a hefty fall-out.

In penny-pinching times, insurance is seen as a place to save money - or for the less scrupulous or more desperate, even to make money.

The temptation to cut your premiums, or to try and trigger a pay-out, rises as economic confidence falls.

Even sound claims may be refused, and even supposedly sound insurers may yet be tested by the financial crisis.

For Eric Galbraith, the Glaswegian chief executive of the British Insurance Brokers Association (Biba), that makes brokers giving advice, rather than the cheapest product on the internet, more valuable than ever.

Galbraith, who ran the Royal Bank of Scotland's insurance business in Glasgow in the 1990s and who took the helm of the industry body five years ago, predicts a multiple fall-out from the financial crisis on the business of insurance.

At a time of increased job insecurity, policies that properly insure against defaulting on mortgage, loan or credit card payments could become critical. But this month the Financial Services Authority slapped a record £7m fine on Alliance & Leicester for the mis-selling of payment protection insurance (PPI), and outlawed the sale of single premium policies alongside personal loans, in a market where banks have been charging up to 12 times more than independent providers for the same cover.

"PPI is a product individuals should consider," Galbraith says. "What we need is more competition in the market it has got to take a step change, of consumers being aware they can buy this cover elsewhere in the market. Banks have an audience at the point of being loaned money, which makes people quite vulnerable."

Travel agents enjoy a similar power over a captive audience when selling holiday insurance over the counter, but campaigning by Biba helped to ensure that they are now covered by full financial selling rules.

Paying too much for cover that does not work is one pitfall, paying too little is another. The explosion of internet comparison or "aggregator" sites has prompted an investigation by the Financial Services Authority into the broking industry's complaints that online buyers are being sold short.

"We say many sites are unfair and misleading," Galbraith says. "We are working with some of them who have a different attitude, who don't go out to manipulate the figures."

The association praises gocompare.com for guaranteeing a quote once given and not building hidden assumptions into it. It lambasts other sites for practices such as quoting on the basis of a £500 excess and no windscreen cover on motor policies, which one user in three did not realise they had accepted, according to research. "These sites are coming up with the wrong cover at the wrong price. These are big concerns," Galbraith says.

He adds: "An amazing number of brokers have adopted the internet themselves, and many are now on aggregator sites as well. We are beginning to see them using these sites as a marketing tool, offering the consumer added protection."

Protecting the consumer has become an even stronger message at a time the very foundations of the financial sector are shaking.

"The focus has got to be on who is behind the protection, who is the insurer. When you transfer a risk on to an insurer's balance sheet the policy is only as good as the security - look at what happened to AIG," Galbraith says. "Fortis is a huge underwriter of motor business for the AA, Post Office and others. We are being told Fortis is still strong in the UK and it's business as usual the only change would be if the bank decided to sell its insurance sector."

Galbraith says the FSA has been "over-enthusiastic" in its oversight of the sector, which is heavily regulated compared with the rest of Europe.

"They should have focused on the real risk areas, not the general insurance sector, which is a far lower-risk area than banks and investment banks. They are paranoid about certain issues within our sector." Those issues, around conflicts and transparency of pricing, had never been raised by clients, he adds.

Biba also brands as "alarming" the FSA's failure to enforce the same level of disclosures for internet and direct sellers as is required of brokers.

Meanwhile, insurance brokers may have to shoulder some of the burden of failing banks, as they are conscripted payers to the Financial Services Compensation Scheme.

Galbraith says the scheme was not designed to deal with disasters such as Bradford & Bingley, and could place an "iniquitous" burden on a sector remote from the problems.

"Why should a small broker in Perth or Glasgow, or even a large broker, suddenly have to contribute to a bank failure?" He says a £7bn compensation bill would land his members with a £100m burden - "it could be 3% of their relevant income, when their margin might be only 10% or 12%".

Galbraith joined the industry from school in Glasgow and spent 29 years in the same business, rising to head the Bowering operation in Scotland before moving in 1994 to RBS where he headed up the IFA as well as the insurance business and started the Mentor consultancy arm. In 2000 he moved to Bristol to head up Hill House Hammond, with 240 branches and 2200 staff - which was shut down by Norwich Union three years later.

But smaller brokers have sprung up to fill market gaps, with spin-outs and start-ups taking the total to over 2300 Biba members handling around half the value of all UK general insurance policies.

Meanwhile, competition in the market has kept the lid on premium rises over recent years, but that could be about to change - just as business and family budgets are coming under intense pressure. Flood and hurricane liabilities, added to the rising cost of claims generally, could have "a considerable impact on insurers' positions" after years of absorbing cost pressures, Galbraith says: "It is a fragile situation, and my belief is we are going to begin to see some increases."

But getting paid out will also be more difficult. "Insurers are becoming more careful about the way they look at claims," Galbraith warns. "They will put them under the microscope so there is more of a position to have insurers rejecting claims. In these circumstances it is important to have somebody on your side."

He goes on: "It is a direct function of the pressures they are under there is a correlation between the economic crisis and the increased number of fraudulent claims. Insurers are therefore on notice, they are going to take a closer look."