Stephen Bland puts the FSA's case for regulating general insurance
The general insurance industry has seen dramatic regulatory changes over the past few years and I believe the FSA has developed a general insurance regime that is proportionate and effective.
We are now implementing it for around 18,000 intermediaries with a general insurance permission. We know that moving to the new statutory regime has not been an easy task for many firms, but our aim is to work with them to help improve standards across the industry.
We'll provide practical material which will help firms understand our regulation in a way that enables them to apply it to a broker's business.
And we'll be here to answer their questions and listen to their concerns.
We have a number of priorities for the retail sector this year. The first is to continue processing the late applications from general insurance intermediaries and either grant them full authorisation or reject them.
So far, we've reduced the 941 firms that were interim authorised at 14 January to below 200 and the figure will continue to drop through the year.
In parallel we will continue rigorously to enforce the perimeter where firms are either unauthorised or acting outside their permissions. So far we have been concentrating on detecting unauthorised mortgage firms, but the focus of this work is now moving to the general insurance sector.
The rapid expansion of networks, together with evidence gained from the authorisation process, suggests there may be significant systems and controls issues in firms that have appointed representatives.
We are concerned that principals and appointed representatives may not have implemented the controls required in such circumstances and will therefore be considering the adequacy of controls in a small number of larger networks.
Disclosure is a keystone of our consumer protection regime and we will be checking that firms are adhering to the rules we have introduced to make the market work better for their customers.
The policy summary is the key document and we will be focusing on whether significant and unusual exclusions are being properly and clearly disclosed.
We will also be looking at intermediaries' initial disclosure documents to ensure consumers are getting the right information about the service being provided and statements of demands and needs.
High on the consumer agenda is the sale of payment protection insurance where consumers acquire products on the back of another transaction.
The Financial Ombudsman Service (FOS), consumer bodies, and the media have all expressed concerns in this area about aggressive sales practices, poor value products, excessive profit margins, unsuitable products, small print and complex terms.
We will be looking at payment protection insurance across the market (including mortgages, credit card and loan payment protection) and will take action where necessary.
We'll also be focusing on claims and complaints handling. These two issues are linked. Particularly in that firms with poor procedures may fail to inform consumers about their rights to complain and in cases of dispute, firms and consumers often disagree about where a negotiation process on a claim ends and a complaint starts.
Although this should be clearer under the new rules as insurers are required to communicate the reasons for refusing a claim to the customer.
There are some allegations of poor practice in this area, especially where claims handling is outsourced.
We have also seen some early indications where potentially brokers are collecting premiums from their customers, not putting them on risk and pocketing the money. If cases like this are proven we cannot allow this type of practice to continue.
Not only does it leave consumers exposed but it also has an impact on the credibility and honesty of the industry. So we will take action and, where relevant, involve other prosecuting authorities in these situations.
All these areas will be tackled as part of our thematic work, which enables us to investigate or increase our knowledge of or address concerns relevant to a specific area.
Some 97% of the firms we now regulate are small firms that have been broadly classified as a low individual risk to our objectives - collectively, however, so many small firms have a big impact on our objectives and we have to be organised and effective in the way we supervise them.
Much of our supervision of small firms will be done through analysing the information we get about a firm from varied sources, such as regulatory returns, product sales data, common themes that arise from visits to firms or questionnaires received, and identifying any risks to our objectives.
We will not be reacting to every issue that lands on our desk or trying to save every firm that borders on failure. We must accept that with a finite number of resources we can only tackle the most important issues and even then we will have to prioritise so that the issues are dealt with according to their impact on our objectives.
No regular visits
Small firms won't have a day-to-day relationship with us nor should they expect regular visits from us.
Instead, we'll contact them only when providing them with information about good and bad practice we have seen, or about relevant FSA developments, when we need to follow up any of the information we've received about them or to ask them to participate in our thematic work. But there are plenty of opportunities for firms to interact with us.
We do this by communicating with smaller brokers in a number of ways and have put in place a number of initiatives to make the FSA easier to do business with for small firms.
These include our firm contact centre, and firms online which allows firms to electronically submit returns, make certain applications and inform us of changes to their details.
We have begun a series of visits, roadshows and surgeries around the country at which firms can ask questions. We also run a wide programme of industry training events and there is a wealth of information on our website including dedicated pages for general insurance business and a tailored version of the FSA Handbook.
- Stephen Bland is director of the small firms division at the FSA.