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Has the fsa taken too long to get tough on general insurance since regulation?

It’s likely to be a matter of time and education rather than getting tough that will help the GI regulatory regime bed in, say our experts

They say you can’t teach an old dog new tricks but those who sell general insurance have no option but to prove such folklore wrong if they wish to continue trading under the Financial Services Authority’s statutory regulatory regime.

A recent FSA survey showing that many general insurers are not yet complying with disclosure rules suggests there is an awful lot of learning still to be done. And the fact that lack of clarity around significant exclusions is highlighted as an issue is also a major concern.

But it would be unreasonable to expect the proverbial oil tanker to be turned round overnight and, if anything, progress has been slightly quicker than originally anticipated. I had never envisaged it taking anything less than a couple of years for the FSA to knock most people into shape and I suspect it will take even longer for those who fail to pass muster to be kicked out of the industry.

Indeed, it may require a major mis-selling scandal for the latter to happen, and my money is on this occurring first in the area of critical illness cover – with bank assurers taking centre stage.

Don’t forget expulsions are still taking place on the investment side of the business, which has been regulated for the best part of two decades. No matter how many circulars the FSA issued about the importance of appropriate risk warnings, it made little impression on certain firms selling precipice bonds.

As we have seen from the government’s woeful tardiness in stockpiling vaccines to combat Asian bird flu, it can take the realisation that a pandemic is inevitable to focus the mind. But the FSA can at least congratulate itself on having made far more impressive initial progress than the Department of Health. Many in the industry have long believed the FSA got round to the inclusion of general insurance into the regulatory framework as an afterthought.

With the focus being on mortgages, many of the distribution outlets for general insurance were apparently not considered before regulation came into effect. From veterinary practices to car dealers, many outlets were blissfully unaware of the tidal wave of regulation about to overwhelm them.

So it is no surprise the FSA is now voicing concern over the apparent gaps in regulation being used by many of these distributors. While ignorance is no defence, when it comes to general insurance the regulatory framework is a sledgehammer to crack a nut and rather than adopt a punitive stance with many of these distributors, the FSA should take a more consultative approach. The regulator should embark upon a programme of education before swinging the axe of enforcement.

General insurance is seen in many circles as low risk from an advice perspective. After all, how badly can you advise someone with regard to buildings and contents? There are obviously some areas of concern, such as payment protection insurance policies, but on the whole general insurance represents a minimal risk – a point not lost on the FSA I’m sure.

In many respects the FSA would have done better to defer the implementation of ICOB until mortgage regulation had settled down.

But the reality is that the industry is now regulated and we just have to get on with it. Those who make little or no effort to comply should go the way of other firms who have adopted this sort of wait and see approach. For the majority, I’m sure it’s just a matter of education and time.


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