The provincial market must deliver policy wordings promptly, or face the FSA, says Michael Faulkner
The Lloyd's and London market is now grappling with the thorny issue of contract certainty. Under the watchful eye of FSA chief executive John Tiner, who has taken a personal interest in the problem, the market is now hammering out a solution to appease the regulator.
The practice of ‘deal now, detail later' has to end; the FSA demands greater certainty of terms and risk at contract inception followed by full and prompt policy documentation.
For the provincial market, a long way from Canary Wharf and the gaze of the FSA, the contract certainty debate may seem very distant. "It's a Lloyd's issue", will be the reaction of many brokers asked about the relevance of the issue to them. But for the provincial market to ignore this issue is naïve and dangerous.
Lack of contract certainty is a problem for provincial brokers and composite insurers and it must be addressed. While it may not have received the damning criticism from the FSA that the London market suffered last year, there is no doubt that the regulator will be watching its performance - and talking to brokers.
Brokers report many instances of policy documents taking weeks if not months to be produced. One tells of a policy that finally arrived only last week after the client went on cover in July - and even then it was riddled with errors and had to be returned. This is not an isolated incident. It is happening day after day, week after week.
But are these delays really problematic? Unlike Lloyd's, the composite market does not rely on bespoke policy wordings. One policy wording is much the same as another. Brokers should be able to advise customers of the scope of their policy cover and important terms and conditions, after all.
Yet placing this burden on brokers only creates inefficiencies in the system, raising costs and distracting the broking staff from their primary roles. As Tiner warned in his criticism of the lack of contract certainty in the London market: "Brokers can ill afford a fat cost base due to basic inefficiencies."
Furthermore, delays in receiving policy wordings leave clients not fully informed about the cover that they have bought. While brokers can provide summaries of cover, these cannot go into the detail necessary to give a comprehensive understanding of the insurance cover.
One only has to look at the FSA rules to see that long delays in policy production are not acceptable. The Insurance Conduct of Business rules require commercial customers to be provided with policy documents "promptly". The more complex the insurance cover, the greater the need for swift production of documentation.
Over the coming months the FSA will be keeping a close eye on insurers and brokers performance in this area. If the composite market does not get its act in order, the FSA will wade in and make its presence felt.
If that is not enough to focus the mind, the slow production of policy documentation does nothing for the public image of the industry. It only helps to further the perception that insurers care little for their customers, only being interested in profit. And brokers are left to face customer frustrations.
Contract certainty must be an issue for everyone in the market this year. IT