General insurers express compliance concerns with FSA deadline imminent
The survey revealed that:
– 96% of general insurance senior management say “many firms” will not be compliant by January 14th deadline, despite being authorised by FSA
– 92% believe the FSA has underestimated the cost of implementing new rules
– 87% worried that “gold-plating” will give foreign firms a competitive advantage over domestic players in the UK market
The survey of over 200 general insurers and brokers reveals a prevailing view within the industry that large numbers of firms will become authorised by the FSA without having put in place the procedures required to comply with its new rules.
The survey also reveals that 92% of insurers believe the FSA has substantially underestimated the cost to the industry of implementing the new regulatory requirements.
The reason for the 14 January start date for the new regime is to enable the UK to meet the deadline for compliance with the EU Insurance Mediation Directive, which comes into operation on the same day. Nearly two thirds (64%) within the general insurance industry believe far more cost-effective methods of compliance could have been found had they been given longer to prepare. 65%, meanwhile, are fearful that the watchdog will seek to make examples of some firms once the new regime starts.
Tracey Robinson, Managing Director of Docucorp commented: “The FSA appears to be allowing pressure to adhere to the blueprint of Europe to override UK interests. Our survey indicates that the general insurance industry simply needs longer to prepare if this new regime is to be fair and effective, and the costs to consumers and shareholders are to be minimised.
“The FSA does not appear to have taken into account the extent of the preparations that insurers and brokers are having to make. The majority of firms applying for general insurance authorisation (63% in our survey) are not already authorised by the FSA for any other type of business, such as life assurance or investment management, and are therefore entirely unaccustomed to such stringent regulation. Some of the rules, most notably the introduction of a regulated sales process and major, new record-keeping requirements, are also entirely new to the industry and require substantial changes to IT systems that some firms are clearly not going to be able complete in time.”
Docucorp’s survey also reveals concern within the general insurance industry over the impact of the FSA’s “gold-plating” of EU directives by making UK regulations more stringent than those strictly needed to comply with Brussels. 87% are worried that EU regulatory passports mean that firms authorised in Continental Europe will be able to operate here with lighter regulation than domestic players.
Tracey Robinson said: “The problem of gold-plating makes it all the more important that UK firms act swiftly to find the most cost-effective means of complying with the regulations that the FSA is imposing.”
77% of those surveyed believe the new regulatory regime for general insurance presents a major IT challenge. For example, under the regulations firms must be able to access all information that the regulator may require, such as sales and policy documents and claims data, within 48 hours. 86% of respondents say that their existing record keeping systems would be unable to cope with this requirement.
Tracey Robinson added: “Our research shows that the majority of firms are going to be relying on adaptations to their existing processes in the early stages of the new regime. However, experience of coping with a similar regulatory regime in the life assurance and investment management sectors indicates that IT systems that use rules to entrench compliant procedures within an organisation offer by far the safest and most cost-effective means of compliance. We therefore expect the general insurance industry to invest in applications of this kind over the coming months and years, and this should significantly improve the standard and cost-efficiency of compliance.”