Despite the fact that changes are being introduced to the Insurance Conduct of Business (ICOB) rules next month, it strikes me that very little has been done to understand the proposed reforms, or make alterations to be compliant with them.
After its usual round of consultation and discussion, the Financial Services Authority (FSA) will be pushing forward its move towards a more principles-based regime, although in the payment protection insurance (PPI) sector, the rules are set to get tighter, reflecting the regulator’s concerns over the market.
For brokers working in this area, the big problem at the moment is the lack of support they are getting from underwriters, despite the fact that it is brokers who will be bearing most of the brunt of regulatory responsibility.
There is to be an increased focus put on eligibility and it is going to be imperative for brokers to really understand the needs of their client and the ins and outs of each policy they sell, to make sure it is suitable.
Historically, underwriters have used a series of rating questions to band clients. This is all very well, but unfortunately it does not work particularly effectively when it comes to ensuring eligibility.
It is still possible on numerous websites to go through the online questionnaire and end up being sold a policy under which it is impossible to make a full claim. Why underwriters have not taken the time to change this remains a mystery and seems to smack of a flagrant disregard for compliance – surely some will be sanctioned before too long.
However in the meantime, many brokers, who have relied on the underwriting questions to form the basis of their client interview will have to make significant changes or they are likely to end up selling the wrong policy to clients and will be charged as guilty when confronted by the regulator.
It seems incredible that underwriters are not being more proactive in a bid not only to offer the best service and product to clients, but also to help their brokers sell their policies properly.
Instead it seems that too many are happy to sit back, allow brokers to bear the full brunt of regulation when it comes to selling the insurance and continue to make good out of clients that pay the premium, but do not have a chance of claiming on the policy.
The rule changes come into force in December and there is then a six-month transferral period. Very few look set to be ready by December, and the worry is that things will look the same come the summer.