Tony Howe looks at the pros and cons of the General Insurance Standards Council and explains why intermediaries should push to resolve contentious issues before signing up.
I regret to say that having seen the rules in full for the first time, I believe that more needs to be done before anyone should sign up. There is a lack of transparency in what members are being asked to sign up to and I feel there should be a form of prospectus, setting out what the rights of members will be, how the corporate structure is envisaged, and what rights members will have to vote on the continuing constitution of the entity.
It should be remembered that the government accepted the argument that the case for statutory regulation of general insurance was not made out. A fairly light touch regulation was sufficient.
Accordingly, one would have anticipated some compromise, with perhaps the best bits being taken from the IBRC Code and the ABI Code. The resulting common standards would be backed up by on-site monitoring, a system of complaints, and ultimately a system of conciliation and determination of any disputes that might arise. Liabilities would be covered by not overly costly professional indemnity insurance for those intermediaries who could not satisfy claims from limited resources. Sensible rules about training, competence and understanding of products should be enforced.
It is my view that restrictions on trading licences and ultimately loss of licence – rather than fining or naming and shaming – would be a better way of removing the incompetent or the crooked from the industry.
We have got unnecessary regulation in that not only is there a personal lines code of conduct but also a commercial code. Should regulation of general insurance really be aimed at commercial enterprises? In all other spheres of activity where the consumer is involved, companies are left largely to their legal remedies without the additional protection of regulation.
The organisation proposes to render itself immune from any liability whatsoever, save where it acts in bad faith. It then denies members the means to protect themselves if they are unfairly treated, or disproportionately treated, since they are precluded from entering into arrangements that can insure or compensate them in any way for fines that might be imposed – regardless of whether they are subsequently proven to have been unfair or disproportionate.
One very real concern is that professional indemnity (PI) may not cover liabilities. The approved insurer panel has not been established and a number of questions remain unanswered. For instance, confidentiality may be breached, in that information may be passed on to an ombudsman. This is likely to cause problems with PI insurers.
Further, looking at the disciplinary section, we discover that not only is there the potential for imposing unlimited fines, but worse still, there is confusion between discipline and compensation. The Disciplinary Panel will have power to make an award of £100,000 – twice the amount an experienced County Court judge is permitted to make.
When the Personal Investments Authority set up its compensation and disciplinary proceedings, Lord Ackner, Law Lord, recommended that civil compensation and disciplinary action remain separate matters. Burdens of proof for disciplinary breaches should be more onerous than the test of negligence for civil compensation. A disciplinary tribunal is not (nor can it be expected to be) susceptible to arguments of contributory negligence and causation, nor is it able to award contribution from third parties. Any assessment of damages would be completely rough-and-ready and would not necessarily follow legal principles.
Hence, I would suggest that no PI insurer would consent to insure such awards. To sign up to the GISC without the approval of the PI insurer is to open oneself up to immediate problems. It is a great shame that, should these proposals go through, PI insurers and the regulator will already be on a collision course that may limit the market, with prices reflecting these unusual liabilities (if insurable at all).
I, for one, had encouraged negotiations with the professional indemnity market to ensure that the proposals were satisfactory before rules were promulgated. Then a stable market of approved insurers could perhaps be set up at the outset when everything tied together in a satisfactory way.
There is still a real opportunity here for the market to get it right. I would suggest that all involved should hold off joining until such time as these important matters of principle are resolved in a way that does not:
I would suggest that a detailed reading of the proposed rulebook is essential. Before intermediaries sign up, the above potentially contentious matters should be carefully sorted out and an approved PI insurer scheme properly established with committed support from interested underwriters.