FSA outlines regulation of general insurance business
The FSA has released the following:
The FSA takes on responsibility for regulating general insurance and protection insurance sales, advice and administration from 14 January 2005. This is a major extension of the FSA’s role and there are currently around 36,000* firms preparing for the new regime. It will benefit consumers, enabling them to shop around more easily and to make an informed choice about taking out an insurance policy suitable to their needs.
Better deal for consumers
The new regime:
– means that consumers will get clear pre-sale information in a policy summary bearing a keyfacts logo;
– will raise and maintain the quality of advised sales. Only a suitable policy can be recommended and customers receive a suitability statement so that they can check the adviser’s recommendation;
– reduces the likelihood of consumers buying unwanted or inadequate cover. Retail customers will be informed of significant and unusual exclusions in the policy summary. They will also be told the premium separately from the cost of other goods and services provided;
– requires that adequate notice of renewal must be given to enable retail and commercial customers to shop around and find alternative cover if their insurer is not willing to renew;
– sets standards for fair and prompt handling of claims;
– protects consumers’ money when it is held by insurance intermediaries – for example, premiums for onward payment to insurers and claims money to be paid to consumers.
– keyfacts documents are an essential part of the decision-making process when buying a financial product. They offer clear, practical information;
– customers will receive a lot of information while shopping around for a general insurance policy, but the keyfacts information is the most important;
– the keyfacts documents will help a customer identify the best deal for them – it’s important they read it.
Keyfacts campaign for consumers:
– the FSA has been running an online consumer awareness campaign on the keyfacts documents since November (the campaign covers mortgages, general insurance and financial advice when and where appropriate);
– a three month national press advertising keyfacts campaign will begin in January to tie in with the new insurance regulation;
– leaflets and posters have been developed to support this and from next year the leaflets will be available from GP surgeries, CABs, local authorities, trading standards and other not-for-profit agencies;
– a factsheet for consumers on general insurance regulation will be available on our consumer website in January.
Other consumer protections:
– the new regime means that all general insurance firms will have to meet the FSA’s standards for authorisation, including capital adequacy, PII cover and Approved Persons status for key personnel;
– general insurance firms will come under the Financial Ombudsman Service: consumers can take to the FOS complaints that they are unable to resolve with the firm they dealt with;
– general insurance firms will come under the umbrella of the Financial Services Compensation Scheme: consumers will be entitled to compensation in the event of financial loss if a firm fails.
– we have developed a smart approach to supervising general insurance firms, with a reporting regime based on disclosure and better and wider use of available market data to assess risks within firms, products and markets;
– we will act to prevent unauthorised operators from carrying out general insurance business;
– the FSA has been working with the industry and trade associations on general insurance regulation for the last two years, undertaken two national advertising campaigns and three direct mailshots to alert firms and provided extensive industry training (attended by 9,400 individuals so far). Through our contact centre we’ve handled 135,000 queries from firms affected by mortgage and general insurance regulation.
Countdown to General Insurance Regulation:
December 2001: Government announces that the FSA will regulate general insurance intermediaries under the Insurance Mediation Directive (IMD).
October 2002: Government consults on the scope of regulation including the regulation of selling and administration by insurers.
December 2002: FSA consults on its approach to conduct of business regulation in CP160 and publishes draft rules on extending the appointed representatives regime to insurance intermediaries in CP159.
March 2003: FSA consults on the draft rules on high-level standards, prudential requirements and client money for insurance intermediaries.
June 2003: HMT announces that travel insurance with travel arrangements will be excluded. Extended warranties sold with a product will also be excluded subject to the outcome of a Competition Commission report on extended warranties. (But an exception is made for extended motor warranties which will be regulated).
June 2003: FSA consults on draft conduct of business rules in CP187.
September 2003: FSA publishes PS174 setting out near-final rules on prudential requirements, client money and other high-level standards for general insurance intermediaries as well as near-final rules for the appointed representatives regime.
September 2003: FSA publishes draft rules on regulatory reporting requirements in CP197.
October 2003: Final application fees and fee bands published. Smallest firms will pay £500 if they apply early and electronically.
December 2003: Government announces that it will implement the Competition Commission’s proposed remedies for extended warranties on domestic electrical appliances and that the sale of these will not be brought into the scope of FSA regulation.
January 2004: Final rules on conduct of business, prudential requirements, client money and the appointed representatives’ regime are published.
March 2004: FSA publishes final rules on reporting requirements
14 January 2005: N (GI) – General insurance regulation starts.
The FSA consults widely with practitioners, consumer interests, trade associations and professional firms on regulatory proposals and practices before these are put into effect.