Mortgage intermediaries will have some changes to contend with in the shape of the New Insurance Conduct of Business rules.
As part of the Financial Services Authority’s move to more principles-based regulation it is consulting until September 28 on an amended ICOB sourcebook. The proposed amendments substantially reduce the size of the sourcebook, and replace many of the prescriptive rules with high-level principles and guidance. This is particularly true for its ‘other insurance products’, which includes travel and motor insurance, buildings and contents policies, but notably not payment protection insurance.
The remaining products fall into the ‘pure protection contracts including payment protection insurance’ group, which ” To attempt to define a single premium PPI policy as a monthly cost to allow clients to relate to their monthly budgets would be difficult”includes life insurance, critical illness cover, income protection, PPI and accident sickness and unemployment policies. These policies benefit less from reductions in rules, and for some ‘higher risk’ products there are more detailed rules.
While oral disclosure isn’t new to ICOB – it is already a requirement to orally bring to the attention of the client the main characteristics of a policy where part of the sales process has been conducted orally – the inclusion of oral price disclosure takes this further. It suggests that in every sale that, even in part, relies on an oral sales process – even over the telephone – disclosure of price must also be made orally to the client. To complicate things further the consultation paper describes the method of calculation of ‘price’ as ‘enabling a customer to relate it to their regular budget’. This is simple enough for a monthly premium life policy for a salaried employee, but to attempt to define a single premium PPI policy as a monthly cost to allow clients to relate to their monthly budgets would be difficult – to both calculate and explain to clients. And I wonder if the FSA has considered whether insurers would be willing to offer key facts illustrations with weekly premiums (surely even if payments are still taken monthly) for those that are paid a weekly wage and ‘regularly budget’ on a weekly basis?
The second major proposed change relates to the cancellation terms of PPI policies. The suggestion is to increase cancellation terms from 14 to 30 days and to make a client aware of cancellation rights orally. Most significantly, clients cancelling within the cooling-off period should be offered full refunds. While this is relatively easy to incorporate for regular premium ASU policies, the implications for single premium policies are less clear.
The other result of these changes is severe disruption to the typical sales process of PPI. While unbundling PPI from credit may in some respects be positive, it would be counter-productive if it results in lower market penetration and less consumer protection .
As always, the FSA values input from those in the industry. The Association of Mortgage Intermediaries will respond on behalf of members shortly, but we always encourage advisers to engage directly with the FSA. For those who cannot spare the time to respond, supporting AMI will allow us to best represent your views.