FSA outlines approach to general insurance regulation

This means that from October 2004 firms and individuals that sell many different types of general insurance will need to be authorised by the FSA. Sarah Wilson, Director of High Street Firms Division, said:

"These proposals, which would in part implement the Insurance Mediation Directive, set out the standards that insurers and intermediaries should meet when selling insurance and handling claims.

We want to ensure that consumers are treated fairly. They should be provided with relevant information on both firms and products and, if they receive advice, the product recommended should be adequate to meet their needs. If they make a claim, it should be handled promptly and efficiently.

We aim to introduce a regime that achieves these goals in a proportionate, cost-effective manner and which has regard to issues of competition, both within the UK marketplace and internationally."

What will regulation involve?

• Requirements on firms relating to the sales process i.e. if the firm is giving advice, a policy is recommended that is adequate to the customers needs;

• Firm status disclosure, where the firm must provide information to its customers on the service that it is providing in an understandable format;

• Proposals on fair treatment of consumers including, for example, the FSAs views on whether commission should be disclosed, an unfair inducements rule and cancellation periods;

• Product information measures to ensure that customers get key product information at a time when it can influence their decision-making;

• Claims handling standards to require firms to treat claims fairly and promptly;

• Training and competence regime for individuals selling and managing insurance contracts; and

• Complaint proposals to require firms to meet certain standards when handling complaints and to provide customers with access to the Financial Ombudsman Service for the new regulated activities.

The FSA is also publishing today draft rules on its proposals for changes to the appointed representatives regime. These reflect the Treasury's intention to extend this regime (which currently applies only to investment business) to give mortgage intermediaries and general insurance intermediaries the option of becoming appointed representatives, as an alternative to direct authorisation.

Notes for editors

1. This consultation is the second in a series that will cover mortgages and general insurance, following the Governments decision in December 2001 to extend the FSAs responsibilities to include mortgage advice and arranging and the sale of general insurance. The first consultation paper covered mortgage selling CP146 The FSAs approach to regulating mortgage sales. (The consultation period for this is now closed and the FSA is considering responses.)

2. The new regime is expected to come into force in October 2004. The Government intends that it will coincide with the introduction of the new mortgage regulations.

3. The proposals on the selling and administration of general insurance are contained in CP160: Insurance selling and administration: the FSAs high-level approach to regulation. Responses to this Consultation Paper should be received by 10 March 2003.

4. The Government is currently consulting on the draft legislation to bring insurance selling and administration into the FSAs scope Regulating Insurance Mediation Consultation Document (available from http://www.hm-treasury.gov.uk). This legislation and the FSAs rules will implement the EU Insurance Mediation Directive in the UK. Under the Treasurys proposals the following insurance products will fall within the proposed regulations:

   • general insurance personal, including car insurance, buildings and contents etc;

   • general insurance commercial, including public and employers liability, motor fleet etc;

   • non-investment life insurance, which includes critical illness, income protection and long-term care etc;

   • reinsurance of the above.

5. What is covered by the new regime?

   The following activities will be regulated:

   • Introducing;

   • Proposing;

   • Carrying out work preparatory to the conclusion of contracts for insurance;

   • Concluding contracts for insurance; and

   • Assisting in the administration and performance of contracts of insurance, in particular in the event of a claim.

6. Existing rules restrict an Appointed Representative of a product provider to one principal (or its marketing group) when advising private customers on packaged products. Under the proposed new rules, ARs will be allowed to have more than one principal, subject to certain restrictions to avoid the risk of conflicts of interest. These are set out in detail in CP159: Appointed Representatives extending the current regime. Responses to this Consultation Paper should be received by 31 March 2003.

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 of consumers; and fighting financial crime.

8. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.