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FSA/PN/009/2007
24 January 2007

The Financial Services Authority (FSA) today announced that the insurance industry has met the challenge laid down to achieve a solution to contract certainty in the UK. This has resulted in a more efficient market for buyers, brokers and insurers and brought competitive benefits to the UK market.

The FSA's decision follows a meeting with insurance industry leaders today in which the industry reported that 90% of contracts in the subscription market and 88% in the non-subscription market are now achieving contract certainty.

Contract certainty is the timely agreement of the terms of an insurance contract and provision of the insurance contract details to a customer. It brings greater certainty for buyers about what they have bought and for insurers about the risks they are covering, whilst also reducing risks for brokers.

In December 2004 John Tiner, the FSA's chief executive, challenged the insurance industry to end the 'deal now, detail later' practice in the UK, giving it two years to find an industry solution or face regulatory intervention. The FSA has been monitoring market progress by working with the industry groups set up to achieve this.

John Tiner said:

"This is a major achievement by the UK insurance industry. Through their concerted hard work they have addressed an issue here in the UK that affects insurance globally. It will serve as a catalyst for the ongoing wider reform of the industry and will further raise the competitiveness of the UK industry.

"This work has also demonstrated the benefits of our preference for working towards market-based solutions where we use our influence to effect change rather than our formal powers. A market failure has been largely fixed by the industry without a single new rule being introduced."

Contract certainty will continue to be a supervisory priority in 2007 and the FSA will ask the market to focus its efforts going forward on reducing the number of contracts that do not meet the market's contract certainty standards. In those cases where it believes that firms have fallen behind the rest of the market it will consider regulatory action to address this.

Notes to editors

1. Contract certainty was defined by the industry working groups as: "Contract certainty is achieved by the complete and final agreement of all terms (including signed lines) between the insured and insurers before inception. In addition:

   1. the full wording must be agreed before any insurer formally commits the contract,

   2. an appropriate evidence of cover is to be issued within thirty days of inception."

2. John Tiner first raised the issue of contract certainty with the insurance industry in a speech made in December 2004. It can be found on the FSA website.

3. The full details of the industry's progress can be found in the presentation [PDF] given to the FSA

4. In December 2006 the FSA sent a Dear CEO letter [PDF] to firms explaining its views of the industry's progress with contract certainty and giving observations of good and bad practice.

5. The FSA's move towards more principles-based regulation was described in a recent speech by Callum McCarthy.

6. 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.

7. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.