Strategy, objectives and regulatory approach
The GISC says it is to promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence in the sale of general insurance. Regulation is intended to be consumer friendly and not burdensome.
Audience reaction: George Spragg, marketing manager of Endsleigh Insurance in Cheltenham, expressed his organisation's strong support for the GISC. But he is concerned the GISC's approach to regulation may be blinkered by its own appraisal of what consumers want. He wanted to know whether the GISC had actually sought the views of consumers before deciding on its approach. He also doubted whether consumers would actually want all of the information insurers and intermediaries are being asked to provide.
Chris Woodburn, GISC chief executive, said the GISC had consulted a number of consumer representative bodies, trading standards officers, citizens' advice bureaux and the Consumers' Association in formulating its proposals. But he said that short of indulging in a mystery shopping exercise, this is the limit of the GISC's consultation.
Philip Newton, lending manager with HSBC Asset Finance in Birmingham asked, whether the GISC intends to differentiate between general consumers and business customers.
Chris Woodburn acknowledged the range of customers in the insurance industry, some being highly sophisticated and others with a lesser understanding of insurance. However he assured the gathering that this distinction will be reflected in the GISC's planned monitoring process.
Dennis Andrews, a broker with Sandwell Commercial Insurance in Birmingham observed that the government seems to be relaxing its audit requirements on small limited companies, while the GISC appeared to be adopting the opposite approach in its monitoring requirements. He also commented that insurers appear more preoccupied with volume than issues surrounding compliance.
GISC chairman Anthony Howland Jackson responded that the GISC will distinguish between commercial and regulatory issues. And Angela Darling, GISC's head of policy unit added, that commercial considerations will not play any part in compliance issues.
Charles Denning, a solicitor with Lovell, White and Durrant in London revealed the existence of a draft European directive with huge implications for the GISC's self-regulatory approach. This he said will require statutory licensing of all insurance intermediaries.
Chris Woodburn said he was aware of such a directive and had recently visited the European Commission in Brussels. Its central thrust is to require member states to set up a "competent authority" to regulate intermediaries and brokers. However, Woodburn said EC officials had told him the GISC could fulfil this role and assured him that its non-statutory status would not complicate the matter. He added that the rest of the draft directive is consistent with the GISC's proposed rulebook.
The GISC plans to admit new members from February 2000. Insurers, IBRC members, ABI intermediaries will be granted 'grandfather' membership rights on the basis that they agree to abide by the GISC's rule book, pay a membership fee and submit a short business profile.
Audience reaction: Independent intermediary Adrian Sutton, of Douglas Insurance in Rugby, wanted to know whether the GISC would have powers to compel all intermediaries and brokers to join the self-regulatory body or if membership would be optional.
He said he is aware of an apparent 'desperate apathy' within the intermediary sector regarding the GISC and went on to express the doubt that some intermediaries would refuse to join. "I think you are going to need a stick to get some intermediaries to join," he said.
Anthony Howland Jackson replied that the industry regulator will be all-embracing. But he said it will be impossible from a logistics point of view to admit 30,000 new members at the touch of a button on day one. Instead members are to be admitted on a flexible, phased basis. He stressed there will be no question of an opt-out from membership for intermediaries. Returning to the subject later in the discussion, Anthony Howland Jackson said the regulator may need to launch a publicity campaign to increase consumer awareness of its existence.
Chris Woodburn said he hoped intermediaries and insurers will see a commercial advantage in belonging to the GISC. But he added to the surprise of his audience, that insurers have said they will review their agency arrangements with non-GISC members. However, he said the regulator did not want to rely on this type of compulsion in the longer run.
Another audience member asked whether IBRC registered brokers will be allowed to join the GISC before or after the repeal of the broker registration act.
Anthony Howland Jackson said he hoped IBRC registered brokers could be welcomed into the GISC fold from the middle of next year. But for practical reasons this would now be unfeasible.
Insurance consultant Tony Cornell asked whether tied agents will be required to register with the GISC.
Chris Woodburn confirmed that tied agents will be regulated by the GISC, similar to the sales forces of insurers.
Principles, code and practice
The GISC's rule book will apply to all sectors of the insurance industry, both insurers and intermediaries, and other sellers of insurance. A working party drawn from across the industry and consumer interests will write the GISC's code based on certain elements included in its second consultation document. The main aspects of the code cover sales practices, relationships with customers, disclosure of information, renewal procedures, claims and complaints handling, competence and training and financial requirements.The GISC code is likely to be supported by a kitemark scheme intended to signify quality to the consumer.
Audience reaction: Chris Arter, general secretary of the AIIB, said the meeting expressed concern that the planned award of a GISC kitemark could lead to a two-tier system of membership. This was firmly ruled out by Catherine Nicoll, spokeswoman for the GISC. Speaking after the meeting she confirmed the GISC is investigating whether to launch a kitemark award scheme. But she stressed the GISC had to be careful in awarding the quality standard. Since the size of its potential membership might mean it would not get around to visiting some firms for a long time.
A GISC working party is considering the introduction of three basic safeguards to reflect the potential risk to consumers. First, intermediaries should not mix insurance-related money (to be kept in a separate bank account) with any their firm's other funds. Second, professional indemnity insurance cover should be maintained to at least £1 million or four times the net retained brokerage and fees from general insurance. Third, a solvency requirement of at least £5,000 is to be maintained by all GISC members other than those regulated by a recognised body.
Audience reaction: Intermediary Adrian Sutton, wanted to know if the regulator's strict financial requirements on segregating insurance money applied to commission payable to intermediaries.
Anthony Howland Jackson stressed the main financial requirement, is that insurance firms should ensure all insurance money, in terms of claims and premiums, are held in a segregated bank account. He added that firms should not remove the premium element from the segregated bank account unless they have received the commission owed to them.
Monitoring and discipline
GISC will appoint monitors to visit each category of member once every four years, or more frequently if required. Monitors will also undertake specially authorised visits as circumstances dictate. The monitoring process is to include tests of sales practice, insurance money segregation, competence and training and complaints records. The monitors will be expected to adopt a pragmatic approach and offer advice to members on achieving compliance with the GISC's needs. Disciplinary action will be reserved where agreed remedial action fails. The GISC will have the following range of penalties available to it; private censure, fines, compensation to customers, suspension, expulsion and public censure. If the GISC cannot agree the scale of penalty to be applied, an independent tribunal will be convened to hear the case.
Audience reaction: Julian Bateman, managing director of Bateman Insurance Group, wanted to know how the GISC planned to ensure consistency in its monitoring approach. He said his experience with monitors from another self-regulating financial body (Personal Investment Authority) had been less than satisfactory. and went on to suggest the GISC might lose broker support if the quality of its monitoring process is not up to scratch.
Chris Woodburn said, the regulator was currently engaged in selecting between three and four firms with monitoring expertise to act as the GISC's agents in this area. And Anthony Howland Jackson agreed that getting its monitoring approach right will be critical for the regulator, or otherwise the insurance industry might lose its self-regulatory status.
Competence and training
A working group with representatives from the Chartered Insurance Institute has produced proposals for the training, competence and qualification requirements of those involved in selling insurance. Their recommendations are based on three categories of GISC membership, non-insurance specialists eg travel agents, consumer goods retailers; insurance specialists selling direct to the public and; insurance specialists acting as intermediaries. Competence requirements are suggested to apply to those in direct contact with consumers and relate only to the ability to transact business. January, 2003 has been set as the date for full compliance to be achieved. Some potential GISC members will be granted grandfather rights or qualify for membership without having passed specified exams.
Audience reaction: Adrian Sutton queried whether training and professional development requirements would apply to insurers' customer service staff. He thought some of the GISC's training requirements could be 'inaccurate and inappropriate' for certain parts of the industry. He added that intermediaries already faced fierce competition from direct writers who are able to deploy sales staff with little formal insurance experience very quickly.
Chris Woodward answered that the GISC expected all insurance industry staff involved in the selling process to have a degree of competence.
The GISC has found it difficult to set fees for members while lacking comprehensive information on their financial details. For intermediaries it is proposed fees will relate to 0.1% of revenue or aggregate commission and fee income. For insurers the amount is defined as 0.025% of net general insurance premium income after deducting reinsurance premiums. The minimum fee is £300 and the maximum £100,000.
Audience reaction: Paul Carter, manager of independent travel agent, Kwik Travel in Tamworth asked bluntly what potential members might expect from the GISC in return for their joining fee.
Chris Woodburn explained the GISC was not a trade association but a regulator funded by the insurance industry. He said its monitoring role was designed to be appropriate for the industry's circumstances. And that self-regulation held distinct commercial advantages in inspiring public confidence and consistent standards across the industry.