A Revolution in General Insurance Regulation

So why such a large hammer to crack an apparently small nut? The driving force is rooted in European legislation – the Insurance Mediation Directive and the Distance Marketing Directive. Both are fundamentally designed with consumerism in mind. As it is customers who ultimately pay for the FSA (£200m+ budget) through their premiums, will they get value for money?
Insurers and intermediaries are subject to financial rules which will improve basic security. Firms must also comply with new ‘conduct of business’ rules in their sales departments and call centres. This means better communication so customers should know who they are buying from, what it is they are buying, and for how much (including any add-on fees).
Customers ought to be better informed before they buy because firms must explain the significant exclusions and limitations of the cover. And those buying in a private capacity will have the benefit of a two week cooling off period to change their minds and get their money back.
It may take longer to buy over the telephone as staff struggle to ensure the voluminous information requirements have been met and there will be more in the way of paperwork. A concern is that customers rarely read the information they already get and so adding to it may not be well received.

Consumers better protected

Consumer protection measures will be bolstered. Policyholders will be able to refer a complaint about their broker to the FOS (as they can now about their insurer) and if either firm goes bust, individuals owed money can call on the Financial Services Compensation Scheme.
Staff will be subject to a more stringent Training and Competence regime and this will help to improve the quality of service over time.

If you are a part-time intermediary, however, you could face some difficult choices. The FSA’s net spreads far and wide and is catching out many who do not appreciate they are involved in activities which became regulated from January.
Letting and property managing agents are a good example. A firm may not even have been involved in the arrangement of the insurance but in dealing with a claim on their client’s behalf - notifying the insurer and negotiating with the Loss Adjuster – they will be undertaking a regulated activity and are caught in the net.
What are their options? In the first place, they can apply direct to the FSA for authorisation but it is a pricey business – the application fees start at £1,000 and the annual charge will be more.
An alternative is to find an authorised firm to take them under their compliance wing as an Appointed Representative. This may appeal as an easy way out but if anything it will prove to be a more intrusive process of supervision and audit than the FSA itself. And there will be a fee, albeit a lower one.
The third main choice is to withdraw from most regulated activities - if this is feasible – and introduce clients to an authorised intermediary that specialises in property owners’ insurance. Even this requires the intermediary to make the agent an Introducer Appointed Representative. However, the bureaucracy is comparatively light touch and the agent can earn a modest commission from the introductions.

It has been said that the imposition of the FSA is something the industry did not want and neither did the FSA. But it is here and it has the force of law behind it. Any firm involved, however remotely, needs to recognise this and take effective action. Meanwhile, if you are a customer you can feel reassured - and don’t be perturbed by the louder thud on the floor when your policy documents arrive.

Rod Gibson is
Compliance & Training Manager
Alan Boswell Insurance Brokers Ltd