Insurance regulation and you

OK, CP146 is history – although if you have not already done so, this is the last day (November 11) that you can download the response template from and email your own personalised reply to the FSA.

Before the FSA issues its own consultation paper on general insurance, due out later this month, we have had the Treasury publish its &#39Regulating Insurance Mediation Consultation&#39 on October 21. This is part of the Treasury&#39s responsibility to implement the European Union&#39s Insurance Mediation Directive that was ratified on September 30 this year.

Treasury consultation is the more high-level discourse, explaining the scope of the new regulated activities and the legislative process such as amendments to the Regulated Activities Order, which put into effect changes to the Financial Services and Markets Act 2000.

The FSA consultation document will be the more detailed paper on how to implement, monitor and enforce the required changes in the day-to-day working practices of intermediaries.

We start off our overview of the Treasury document with two pieces of good news. The Treasury wants both the mortgage and general insurance regulations to come into force at the same time, in October 2004, and intermediaries carrying on both types of business “will only need to apply once to the FSA for authorisation”.

Coming into force at the same time can only lead to less confusion and present a clear picture of what will be required from the intermediaries in terms of authorisation and compliance. Applying once only to the FSA for both regulated activities is likely to cut down on the bureaucracy, saving time and money for all parties concerned. The timetable for consultation is that replies to the Treasury&#39s document must be in by January 31 2003 and we would expect the FSA deadline for response to be around the end of February.

The final rules for both mortgage and general insurance are then to be published in the second half of 2003. Applications for authorisation can only commence after the date of publication – otherwise you won&#39t know what you are applying for.

While the timetables for mortgages and general insurance regulation say that you can apply to the FSA for authorisation in the second half of 2003, in reality this may well drift into the fourth quarter or even into 2004.

Which contracts of insurance will be regulated? Well, if you can find a list of products in the Treasury&#39s document, then you are a better person than I. So we can only assume that it will follow the products covered by the current self-regulatory body the General Insurance Standards Council (GISC) (see box).

These products are, of course, “protection-only”. There is no savings element, no residual value to the contract and they only pay out in the event of a claim.

Products of most interest to mortgage brokers will be home insurance and payment protection. Non-regulated term assurance (and critical illness options) is not covered by the GISC, it seems to have fallen down a black hole between all the regulators. But surely it can only be a matter of time before it is picked up and dusted down by the FSA.

The activities to be regulated follow the mortgage line and include both “advising on” and “arranging” contracts of insurance. The post-contact activities, such as claims handling, will fall under the regulations, but this is not likely to be of direct concern to most brokers.

The Treasury says: “The government is minded not to extend the financial promotion regime …. to general insurance. The government considers that the regulation of the sales activity itself will provide sufficient consumer protection.” So why then is the financial promotion regime being applied to mortgages? I appreciate the FSA has a lot on its hands with the swathe of current consultations, but it must work hard at some joined-up thinking on the various issues.

The Treasury goes on to say that: “The government intends applying the appointed representatives regime …. to general insurance.” No surprise there, although it does state quite explicitly on page 19 that the authorised person (body) for the appointed representative has to accept responsibility for all the regulated activities carried on by the appointed representative.

This seems to cut across my reading of other documents that imply the forthcoming FSA consultation on appointed representatives will, among other things, be evaluating the possibility of an appointed representative being supervised by more than one authorised body; each being responsible for a particular regulated product or group of products being sold by the appointed representative. No doubt it will all come out in the wash, but again, joined-up thinking please.

The government will require the FSA to maintain a register of all appointed representatives (to be published on the FSA website) and will give the FSA the power to deregister any miscreant appointed representative directly.

This is new, but in all likelihood will have minimal practical impact, as the authorised body (such as a network) would be well advised to clamp down on any nonsense amongst its appointed representatives long before it came to the attention of the FSA.

All in all, there are no real surprises in the Treasury document and we look forward to seeing the FSA consultation paper.

While the regulations must, of course, allow for intermediaries who sell insurance but not mortgages (travel agents being the obvious example), it will be interesting to see what rules are put in place to co-ordinate the selling of related insurances at the same time as the mortgage.

For example, will you be able to produce an illustration for home insurance that is totally separate from, and possibly produced at a different time (albeit by an hour), to the mortgage pre-application illustration?

Or will it be mandatory for the pre-application illustration to contain both the costs of the mortgage and related insurance products sold by the broker, with a ban on producing separate quotations for the insurance? Only time will tell.

General insurance products

This list is taken from the GISC handbook dated June 2000.

Motor insurance

Home insurance – buildings and contents

Caravans, boats, pets, and other property

Travel insurance

Private medical and dental insurance

Personal accident insurance

Extended warranty and breakdown insurance

Legal expenses insurance

Payment protection insurance for mortgages and other loans

Watch this space for:

Term assurance and critical illness options