The FSA's plans for private and non-private customers will create havoc. Grant Ellis issues a call to arms
In consultation document CP160 the FSA suggests that it wants to provide small businesses with the same level of protection as individuals when it comes to regulating the activity of selling insurance to them and remedying any detriment thereafter.
There is no precedent for this as far as I am aware. I'm resigned to the fact that we have moved from a society where "buyer beware" has been replaced by "I'll blame you if something goes wrong", but surely this is a step too far? Call me old fashioned, but I was brought up to accept that in business you took full responsibility for your actions and caveat emptor (buyer beware) was sacrosanct. Clearly the FSA does not share this view.
I could understand it if we were simply talking about sole traders - after all they remain individuals even though they are conducting a business in the eyes of the tax authorities at least. But, unfortunately, we're not.
The FSA's preferred option is to class all businesses with a turnover of less than £1m as "private" customers. The DTI reports that 99.1% of all UK businesses employ 15 people or less. I would suggest that the vast majority have a turnover of less than £1m, so we are talking here about virtually all businesses, not just a small helpless minority.
There is a significantly increased regulatory burden imposed on brokers who want to transact business with "private" customers. Each will have to be provided with a written demands and needs statement and a suitability statement together with a pre-commitment disclosure of what they are buying, which will need to contain all the contractual terms and conditions, including any cancellation conditions. The more complex the product, the more detailed the disclosure needs to be. And don't forget this is all before the customer has decided whether or not they want the policy in the first place.
Of course there is a get-out clause which allows customers to opt out and be treated as non-personal customers, but IFAs have learnt that the FSA will not tolerate 100% opt-outs in their sector, and consequently we have to assume a similar stance in ours.
It should not be beyond the wit of the industry to cope with such requirements for simple packaged policies, but it will be a nightmare for complex commercial policies. And to what end? Research conducted by Datamonitor recently suggested that 94% of SMEs were "satisfied" with their insurance arrangements, and early indications from some Biba research suggest that less than 1% of all complaints about the insurance sector emanate from SME customers.
If there is such limited evidence of customer detriment in this sector it is difficult to reconcile the FSA's approach with the requirement placed on them by the Financial Services and Markets Act to be "proportionate".
So heed this call to arms - let the FSA know how you feel about their suggested cut off for "private" and "non-private" customers before it's too late.
Grant Ellis is managing director of The Broker Network