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John Tiner

John Tiner

Our insurance rules will be more risk-based and proportionate while continuing to meet our consumer protection objective.

FSA/PN/037/2007
21 March 2007

An interim report published today by the Financial Services Authority demonstrates that consumer experiences and risk of detriment vary substantially across the various markets for general insurance products. The FSA has decided, therefore, to consider a differentiated and more principles-based approach to insurance conduct of business (ICOB) regulation.

The review focussed on how effectively general insurance markets are working for retail consumers. For general insurance products such as household or motor policies, the review found that markets work reasonably well in the interests of consumers, and that most consumers do not rely on disclosure documents from firms, which are prescribed by ICOB rules, when making purchasing decisions.

The FSA is therefore looking at removing most of the ICOB requirements for firms that go beyond minimum EU Directive requirements. The essential safeguards to protect consumers would be retained, including the Principles for Businesses.

By way of contrast, the review found that existing regulation of firms' selling practices has an important role in reducing the risk of consumer detriment for those buying personal protection products, such as payment protection and critical illness. These long-term products are usually second or tertiary purchases and consumers lack confidence and experience when buying them. Reflecting the greater risks with personal protection products and their sale, the FSA is also considering a small number of measures to improve selling practices of protection products and to enable customers to receive better information about the nature of the sale and the product.

FSA Chief Executive John Tiner said:

"The work so far confirms our belief that the risk of consumer detriment varies according to the type of insurance product purchased. There is now a strong case for moving to a differentiated regulatory regime, expressed in a more principles-based way, where the focus is on outcomes for consumers rather than processes within firms. Our insurance rules will be more risk-based and proportionate while continuing to meet our consumer protection objective".

The FSA's ideas for rebalancing its general insurance regime are at an early stage and it will publish a Consultation Paper on possible rule changes in June 2007. Any rule changes are likely to be made in December 2007.

Notes to editors

  1. John Tiner spoke about the ICOB review at the FSA's Insurance Sector Conference held in London today. His conference speech will be available on the FSA Website.

  2. The full interim report on the review, and other related documentation, is available on the FSA website:

  3. The review included evidence from the following sources:

    • Market failure analysis (MFA) of 11 general insurance products to examine whether there was a risk of significant consumer detriment in the absence of regulation. The types of consumer detriment considered were unsuitable purchases, expensive purchases and failure to purchase.

    • Consumer research examined whether disclosure rules requiring firms to provide information enhanced the ability of consumers to buy appropriate products. It comprised of 1500 surveys across 7 general insurance products; nearly 800 omnibus interviews on general insurance included in the FSA's Consumer Purchasing Outcomes Survey (CPOS); and one piece of qualitative research with 70 respondents.

    • FSA Thematic Work on Critical Illness (press notice 048/2006/) and Payment Protection Insurance (press notice 104/2006) which showed that consumers in these markets were in many cases not being given all the information they needed to make informed decisions about these quite complex products.

  4. The scope for the general insurance effectiveness review was set out in FSA Press Notice 57/2006. The review considers:

    • how far regulation has delivered against the intended consumer outcomes for the regime;

    • the FSA's move towards more principles-based regulation;

    • simplification of the FSA conduct of business rules ; and

    • the FSA's Better Regulation Agenda

  5. When consulting on ICOB in December 2002, the FSA proposed to differentiate products according to the risk of consumer detriment. The FSA took account of industry concerns at the time over the cost of introducing a differentiated regime, and did not introduce one. Since then, experience of regulating within this sector has led the FSA to reconsider this approach.

  6. This review is in addition to supervisory work and recently announced thematic work being carried out by the FSA to ensure firms continue to meet high-level standards in the sale of Payment Protection Insurance (PPI). (See press notice 03/2007.)

  7. 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.

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

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