The original GISC proposals have been so watered down that Insurance Times editor Chris Wheal wonders if hopes of a single independent regulatory regime are all washed up....
The obituary writers on Insurance Times have begun penning their epitaphs to the General Insurance Standards Council. The news last week that GISC will launch six months late with few of its original proposals in place was met with scepticism by consumer groups and insurance watchers alike. Was this watered-down, toothless talking-shop really worth it? Isn't it dead before it starts?
Apparently not, according to GISC chief executive Chris Woodburn. Playing Mark Twain, he insists that reports of its death have been greatly exaggerated. He knows it will begin healthily, because the board carried out a risk assessment before announcing the July 3 launch date. In other words, GISC has promises from about 1,000 firms that they will join up immediately.
But this is a far cry from the original proposals for a single, equitable regulator for the whole industry and potentially not enough to make it work. The original GISC consultation document did state: "Unless the vast majority of firms are regulated, the regime will be flawed […] Such a regime would be inherently unstable and therefore probably short-lived."
Perhaps we shouldn't take these comments too seriously. After all, little else from that original consultation document seems to have come true. It said, for example, that there would be a single regime. The examples it gave ranged from a broker advising a major corporate client, to a travel agent selling a travel policy alongside a holiday. The regime unveiled this month demolished any semblance of that single regime. Travel agents, for example, will not be subject to the same rules as brokers. They will not have to keep insurance money separate, nor will they have to declare to the customer the commission they make from selling the insurance policy. Talk about getting brokers' backs up.
And it's not just travel agents; any firm that sells more of something else than it does insurance will be free from the more onerous rules. So, providing Tesco and Sainsbury continue selling groceries, they will not have to tell customers how much they make on over-the-counter insurance products, nor keep the insurance money detached from the rest of the tills' takings.
A soft launch
But let's stop this. Listing what GISC said it would do but now won't will take too much ink. It would take less time to list what GISC will do. And, to give Chris Woodburn his due, he does say the starting regime will be just that: a start. The regulatory regime will be evolutionary, he says.
Two big accountancy firms have been signed up for monitoring with PWC, the ABI's current compliance monitors, to continue checking intermediaries, and Ernst & Young to monitor insurers, Lloyd's brokers and current IBRC-registered brokers (if they sign up). The current sellers who go unregulated will effectively come under the PWC regime, although if they sell just one insurer's products, that insurer will be the regulated body and the individual sellers will only face rare compliance visits.
And GISC is adamant it will have enough resources to cope with complaints. It still insists the long-term view is that all intermediaries should belong to the FSA ombudsman scheme once its proposed exorbitant charges have been tempered. In the meantime it has contracted with its accountancy chums to run an investigation when a consumer complains.
Woodburn says it will even take up complaints brought by brokers. "If a broker were to complain to us, we'd act if that would impact on consumer protection," Woodburn says. But the checking will be for compliance only. "It isn't a redress system," he says, which is exactly the opposite of what the original GISC document promised.
The evolutionary regime will, eventually, take in claims handling. But GISC's refusal to monitor claims is a major cause for concern. The Insurance Ombudsman has a constantly rising workload and finds for more than ever before. And that is only when the customer has had the tenacity to jump through the insurer's internal procedural hoops.
Yet it is these very insurers GISC is relying on to sort out claims. The ABI has repeatedly put off its proposed code on claims handling, making GISC look more and more like the ABI's poodle – waiting obediently, rather than coming up with its own standards. "We have put things off while we wait for the ABI, but there is going to come a time when we say we can't wait for the ABI any more," says Woodburn.
But all the talk of getting tough rings hollow. The GISC missed the Office of Fair Trading deadline to produce its rulebook, so any regime is now likely to be curtailed by competition rules. The support of consumer organisations that started to come on board over the past year has been weakened again by the omissions.
Sitting on the fence
Meanwhile, Andrew Paddick and his merry band remain on the fringes. While they may have looked isolated and out of touch at one time, they now have that smug "I told you so" look on their faces. They are determined to continue the IBRC regime as a voluntary regulator after the repeal of the 1977 act. A major point is that it will be free of the interference of the insurance companies.
Woodburn insists all ABI-member companies will sign up to GISC and GISC alone. They will refuse to trade through non-GISC intermediaries, he is adamant. But a network of brokers with some reasonable-sized commercial clients, the directors as substantial high net worth personal customers and loyal, local personal lines markets will be difficult to refuse. Privately, insurers accept they would be committing commercial suicide to refuse to trade with such a group.
It could, in the end, come down to the Government. It has insisted all along that it would prefer a single regulatory regime. There is the potential of an EU directive insisting intermediaries have a recognised regime. But neither fact suggests the Government will make that choice.
The Treasury has consistently refused to commit to making a choice if there are two regimes running in parallel. That would mean GISC bringing in all the currently unregulated areas but brokers remaining outside, regulated their own way.
The Treasury recognised that the IBRA was badly written and had failed to regulate the sector. It hoped, along with many others that GISC would be the saviour. That no longer looks true and it's not only the government that feels let down.