Recent coverage of our discussions with the industry on block transfers may have unintentionally served to confuse matters. It would be helpful in the interests of clarity if I were to set out our position with regard to our rules and guidance in this area.

The rule in question is ICOB 4.7.1R, which implements a requirement of the Distance Marketing Directive (DMD). This is a directive requirement, so we cannot simply give firms a waiver from the rule, even for a transitional period. We have worked with the industry to find a pragmatic approach to complying with this rule.

The rule requires firms to have a "prior request" from a customer before supplying the customer with a service that requires payment. This rule does not apply where a contract is renewed tacitly with the same insurer. But where the insurer changes, such as under a block transfer arrangement, firms will need to get the customer's prior agreement to this.

With block transfers there are two issues for firms to consider:

  • Whether they have the authority from the customer to transfer him from one insurer to another. It seems to us that this authority may be express or implied. It is a matter for firms to satisfy themselves that they have such authority rather than a matter for the FSA

  • How they comply with our rule on getting a 'prior request' from the customer before making the transfer.

    • For new customer relationships where the policy may be subject to a block transfer at a future date, the firm should be able to get the customer's agreement to this at the point they sell the policy. They must ensure any such arrangement is clearly drawn to the attention of any potential new customer and that any such term is given suitable prominence in agreements with customers going forward.

    For existing customers, the requirement to obtain prior request may be met by including in a terms of business agreement, sent to a customer, a clause to the effect that:

  • Prior to the end of any contract period the customer will be advised on what terms a policy for a further period will be offered by the insurer of the current policy, or if the policy is no longer offered, the terms of any policy offered by another insurer

  • The clause represents the customer's prior request for the firm to provide such a policy unless they indicate to the contrary

  • The customer has the option to revoke the operation of this prior request.

    • We would expect any documentation issued to customers to be clear, fair and not misleading with regard to the prior request, its consequences and the option to revoke it. Firms would not have to rely on getting a response from the customer to this new clause in order to meet their obligations under the rule. We consider that this solution offers the industry a simple and pragmatic way to comply with our rules, while not damaging competition and choice for consumers.

    Eleanor Linton
    Head of policy and technical standards
    FSA high street firms division

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