Financial Conduct Authority
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FSA sets out a principles-based future for general insurance regulation
The Financial Services Authority (FSA) today published a consultation paper proposing to radically reform the rules firms need to follow in carrying out general insurance business with their customers. A differentiated approach to insurance conduct of business (ICOB) regulation is at the heart of the proposals, which marks a significant step forward in the FSA's move to more principles-based regulation.
For general insurance business, such as household, motor or pet policies, this means moving to principles and high-level rules, except where detailed provisions are required by European Union Directives or in a small number of cases where they are the only practicable way to protect consumers. While this will mean more flexibility for firms, the FSA will require the same standards of conduct and essential consumer safeguards to remain.
For protection products (Payment Protection Insurance (PPI), critical illness cover, income protection and term assurance), the FSA is proposing a small number of additional rules carefully targeted to improve selling practices in areas where consumers are losing out. Some of these new measures will apply to all protection products, for example, a new standard to ensure balanced oral disclosure to help consumers make informed purchasing decisions. One of these - a requirement for firms to provide information on price orally to the customer where a discussion takes place - will have particular impact on PPI markets. And some measures will apply only to PPI, such as extending the cancellation period from 14 days to 30 days.
Following the consultation, the new general insurance regime is likely to come into effect in January 2008 with firms being allowed a transitional period for implementation.
Dan Waters, FSA Director Retail Policy, said:
"Following our recent radical overhaul of the investment conduct of business rules, today's announcement is another big step towards more principles-based regulation. All the evidence suggests that consumer detriment varies a lot according to the type of insurance product involved. And it is right we should now move to a differentiated and principles-based regime for general insurance where the focus is on outcomes for consumers rather than processes within firms."
Notes to editors
- Consultation Paper 07/11: Proposed amendments to the Insurance Conduct of Business Sourcebook follows the publication of an interim report in March 2007 entitled 'Consumer Experiences and Outcomes in General Insurance Markets' which demonstrated that consumer experiences and risk of detriment vary substantially across the various markets for general insurance products. The FSA decided, therefore, to consider a differentiated approach to insurance conduct of business (ICOB) regulation. The reaction to the report confirmed that it had correctly identified and prioritised those risks and that the proposed regulatory approach to dealing with them was appropriate and effective. The ICOB Review Interim Report: Consumer Experiences and Outcomes in General Insurance Markets (full interim report) and other related documentation, is available in Press Notice 2007 037.
- The proposed ICOB changes relating to PPI are in addition to supervisory work and thematic work being carried out by the FSA to ensure firms continue to meet high-level standards in the sale of PPI. (see Press Notice 2007/003)
- The Treasury has recently announced its decision to give the FSA responsibility for regulating the sale of travel insurance sold with a holiday or related travel arrangements. At the moment, the FSA does not regulate the sale of this type of insurance, although insurers as product providers are subject to ICOB. The Treasury's consultation closes on 18 September. If Treasury's intention is confirmed in light of that consultation, FSA will consult industry and consumer bodies towards the end of the year on the approach it proposes to take.
- Policy Statement 07/6: Reforming Conduct of Business Regulation sets out the new principles-based regime for investment business coming into force on 1 November 2007.
- 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.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal, and improve its business capability and effectiveness.