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FSA/PN/100/2005
23 September 2005

The Financial Services Authority (FSA) announced today that it would conduct a review of the effectiveness of its general insurance regulatory regime.

The review will begin in April 2006 and will focus on retail conduct of business requirements and on the effectiveness of the regime in meeting the intended outcomes for consumers set out in the consultation process leading up to the start of general insurance regulation in January 2005.

Clive Briault, FSA Managing Director of Retail Markets, told the Chartered Insurance Institute Annual Conference:

“This review will be undertaken alongside the review of the effectiveness of the mortgage regime, which we have already announced and which will begin at the end of this year. This joined up approach will recognise the linkages between the mortgage and general insurance regimes, and the fact that many firms are active in both these markets. In addition, the review will take into account our determination to find ways in which we can improve the effectiveness of our regulation and can contribute to the better regulation agenda.

“If the review leads us to conclude that changes to our rules and guidance are necessary, we will, of course, consult on these in the usual way. However, we need to recognise that our ability to make changes is constrained by European Directive requirements – in particular, those in the Insurance Mediation Directive and the Distance Marketing Directive”.

"The review will be built on three core features:

• to encourage feedback from firms and other stakeholders on what they think is effective or ineffective in the regime. The FSA is keen for the industry and other stakeholders to come forward with views on the areas which they believe could benefit from re-examination;
• to undertake consumer research to see whether the intended benefits of the regime are beginning to come through - especially through consumers making good use of the information firms are now required to provide to them;
• a continuation of the FSA’s thematic and firm-specific work to check that the industry is complying with the regime.

The FSA will aim to feed back the initial findings of the review towards the end of 2006."

In his address Clive Briault also described the thematic and supervisory work the FSA has been conducting in the general insurance area. This includes work to establish the risks posed by the sale of payment protection insurance (PPI) linked to other financial products, ensuring that disclosure documents are provided at the right time and are clear and accurate, reviewing systems and controls of general insurance networks to monitor sales by Appointed Representatives, and work on claims handling.

On PPI, Clive Briault said:

"We have just completed a series of visits to look at PPI selling practices in firms ranging from high street banks to motor dealers and small mortgage intermediaries. We are also undertaking mystery shopping work and will be feeding back the results from the mystery shopping and firm visits later this year.

"Our findings from the firms visits are variable. Some firms demonstrated good compliance with our rules - they were addressing problems that may have existed in the past, such as checking that customers are eligible for the policy before selling it. For example, we found that regular premium PPI sold with prime mortgages seems generally compliant with our rules. However, selling practices in other sectors were very poor.

"We are determined to improve standards in this market and intend to publish in November examples of good and bad practice so that firms know what we expect from them.

"I would prefer to see a market solution to these issues – that is the FSA's preferred approach. So the question is how best to bring about this market solution. Broadly speaking there are three choices. First, we could – if justified by cost benefit analysis – introduce tougher requirements. Second, the competition authorities might act, just as the Competition Commission set out only last week remedies for the sale of PPI linked to store cards. Third, and to my mind the simplest, quickest and most effective way forward, the industry could decide to improve its own standards and to move decisively towards putting in place the elements of a considerably more competitive market."

Notes to editors

1. The full text of Clive Briault’s speech is available on the FSA Website
2. The FSA took on statutory responsibility for general insurance regulation on 14 January 2005.
3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
4. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal, and improve its business capability and effectiveness.