FSA protection consultation could risk innovation

Yuan Phoon

January 9, 2012

Devine, chairman at Protect, said: “It’s my belief the stance outlined in the FSA’s document does not provide sufficient support for product innovation.

“Yes innovation can make pricing comparisons more complicated however without it the market is left with providing a straight choice between bland, risk free products that do not provide sufficient cover for the consumer or protection for the insurer, or fully underwritten products that are too expensive for the majority of consumers.”

He said choice and pricing tools in terms of waiting periods and exclusions have generally been the very nature of insurance.

“Whilst there is no gain for anyone in ensuring insurance is complicated I do feel there has to be a balance struck in product design,” he added.

“I think that rule applies here too. There should be active encouragement for product innovation as opposed to simply allowing for price comparisons.”

Devine also said the inclusion of the draft product risk report in the FSA paper is a “distinct change” from the regulator’s previous view that correctly sold PPI could provide valuable cover.

He said: “The consultation document contains a draft product risk report – the first dawn of a new era in product intervention by the regulator.”

He also raised concerns that the FSA had been unclear about what protection products would fall within the scope of new guidance.

The paper currently defines debt waiver, cancellation, and suspension products as non-insurance products, although Devine said the FSA has since backtracked from this bold stance and in a consultation workshop an official said the status was being reviewed.

And he added: “I am particularly fearful that the FSA will include the existing personal accident and sickness product markets.

“Should this be so, then I believe the consultation would miss this audience of providers and distributors because of the short duration and the timing of the consultation, and they will have lost the opportunity to respond.”

The FSA published the guidance CP jointly with the Office of Fair Trading in November last year after the PPI misselling scandal prompted concerns that providers would design new products that would be bad for consumers.

It said: “We are aware that some firms have developed, or are seeking to develop, new forms of protection that aim to meet similar consumer needs to payment protection insurance.

“However, these may pose similar risks to consumers, and the previous failings identified with PPI must not be repeated.

“The FSA’s guidance builds on existing high-level guidance, setting out how this applies to the design and distribution of payment protection products.

“In particular this builds on our regulatory guide ‘the Responsibilities of Providers and Distributors for the Fair Treatment of Customers’ (RPPD) and some of the TCF outcomes we set out in 2006.”

Devine is also worried about a possible lack of co-ordination between official bodies on the protection market.

“The document has no reference to the HM Treasury’s investigation into simple deposit saving and protection insurance products,” he said.

“If this FSA part of this I believe it would be reassuring to mention it because a perceived lack of synergy with this worthwhile initiative could increase confusion and uncertainty amongst providers and distributors.

“It could threaten the emergence of effective and innovative protection products being widely available for those that need them.”

Carol Sergeant’s working group is due to report back to Treasury secretary Mark Hoban in July 2012.

The FSA consultation closes this week on Friday 13th January.

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