GISC hits back at critic
GISC hits back at critic
Dear Mr Ablitt,
May I preface the answers to the particular points you raise with the general observation that our purpose, with the support of government and large sectors of the industry, is to bring coherence to an otherwise fragmented regulatory system which will then operate to protect customers. The diversity of sales outlets used by the industry requires us to be both realistic and practical, but always with customer protection in the forefront of our minds. I would hope that much of the rationale for the Board's approach is apparent from the Feedback to Consultation, which you will have received a short time in advance of the Rules.
With regard to the specific issues you raise:
General Insurance Activities Secondary to the Main Business Activity
We would expect to approach this assessment on a wider basis than just an arithmetic 51%/49% split of revenue, whether net or gross. We will take into account the circumstances of the business seeking alleviation and the potential risk to customers. When we have established satisfactory general criteria, they will be published. It will be appreciated that some cases will be unique and will require an approach beyond generally applicable criteria.
We expect that many intermediaries whose insurance business is secondary to their main business will tend to operate as tied or multi-tied agents, particularly in the retail sectors of the market. There will therefore be minimal risk to the customer as payment to the agent is, in legal terms, payment to the principal and there should be no question of the contract not being honoured.
We have commented in the Feedback to Consultation on the limitations of segregation as a protection for customers in these circumstances, and on the practical difficulties of requiring segregation in every retail outlet. Even where trust arrangements are in place they do not guarantee the total customer protection sometimes expected of them. However, I believe it is a strong signal to the industry that it should not use someone else's money to fund its business, and it is a theme I expect the Board will return to. It is also my view that the priority is to encourage all participants in the industry to be part of a single system and not to impose requirements which we know are, at least for now, unattainable by some.
The disapplication of Professional Indemnity requirements relates to those intermediaries which only sell insurance, such as extended warranty cover, with a product, say, a washing machine. The insurance protects against loss or damage to the goods being sold. Distinction is drawn between tangible ‘goods' and intangible ‘services'. An example of a service might be a holiday in respect of which a cancellation policy has been purchased.
I confirm that until the Insurance Brokers Registration Act is repealed, which it has been announced, will be on 30 April 2001, you will have to continue to be registered with IBRC. You may, if you so wish, join GISC as well. Following clearance of the GISC Rules by the competition authorities we expect to become the sole regulatory body for intermediaries conducting general insurance business.
I think it is likely that other intermediaries may be interested to read my response to your letter, which I see has appeared in The Insurance Times and I have therefore sent a copy to the Editor.
...but critic mauls GISC again
Dear Mr Woodburn,
Your letter serves as yet a further example of the confusion and discriminative inconsistencies within GISC.
Firstly, could I suggest that GISC desist from the irritating practice of prefacing correspondence with claims of support for their objectives from government and large sectors of the industry. The England football team had support for their objectives from government and no doubt a large number of people in our industry but that didn't prevent them from making a hash of it.
It seems to me that, having significantly tilted the supposedly level playing field trumpeted by GISC in their Feedback to Consultation – a good example being the inclusion of Disapplication Clause 18.2 – your response to my straightforward question supports the impression that GISC are now struggling to come to terms with its implications.
By the way, contrary to your statement we did not receive the Feedback Consultation until after we had received a copy of the Rules together with an invitation to join. Although you proffer the suggestion that you expect to approach assessment under Clause 18.2 on a wide basis, such remarks are unconvincing for the simple reason that your wording of the Clause would preclude you from doing so. Clause 18.2 is explicit in that a GISC Member need only demonstrate to GISC satisfaction that ‘General Insurance Activities are secondary to the main business activity of the Intermediary' to avoid the necessity of segregating customers insurance premiums. To assist you in answering my original question, could you confirm which of the following hypothetical GISC Members seeking qualification under Clause 18.2, demonstrating the shown split in both revenue and employees for their non-intermediary and intermediary activities, would satisfy GISC within the context of the Clause.
1. Butcher Intermediary
£3m/£2m Revenue 15/10 Employees
2. Baker Intermediary
£3m/£2m Revenue 10/15 Employees
3. Candlestick Maker Intermediary
£2m/£3m Revenue 15/10 Employees
In view of the comments in your letter, when considering your answer, please note that the case examples used are not tied or multi-tied agents, as of course they have their very own Disapplication Clause 18.3, and I would not wish you to be confused.
I note that you have omitted to specifically comment on the point raised in my letter regarding the absence of any solvency margin requirements for those who are not required to segregate customers insurance premiums. Since many Butchers and Bakers are finding their core business under severe strain from the major retailing outlets, would it not be eminently sensible in the interests of customer protection to ensure that such operations are and continue to be financially sound? I also believe majority opinion would still favour customers' insurance premiums being isolated from other potentially poor cash-flow activities and will find the stance taken by GISC on this aspect far too accommodating in appeasing certain players within the industry. I thought the proposed role of GISC was to regulate all, not to regulate some and just send signals to others.
I agree that tied agents, whether selling insurance relating to goods or services would not necessarily require professional indemnity insurance, as liability would be accepted by insurers, and I was not surprised that you quoted travel agents as an example, but what of those who fall into the category of Appendix 5 who are not tied agents? There is a professional indemnity exposure in such cases?
As it stands, I find it hard to believe that GISC will be able to secure sufficiently widespread support for the Brian Rix-style content of their Rules document and perhaps as insurance brokers review closely the clear discriminations and inconsistencies contained therein, Andrew Paddick's suggestions will become more appealing. In the event that proves not to be the case can I put you down for some of our new range of candlesticks which we may be launching in April 2001?
I await your response with interest.
Ablitt Insurance Management
and GISC has last word
Your correspondent Brian Whicher (Letters, 22nd June) raises two important issues concerning the business information requested by GISC on pages 4 and 5 of our Application for Membership form.
First, I can assure all Members that such information will be held entirely confidentially and will not be available to anyone for commercial purposes. The only Board Members who might need to see such information are those who sit on the Membership Committee. Naturally they, in addition to our monitors Ernst and Young and PricewaterhouseCoopers, are subject to appropriate confidentiality agreements.
Second, we recognise that providing the required Analysis of Premiums may involve some applicants in work, depending on how their information systems are structured. However, if we are, as a regulator, to provide relevant, effective and value for money compliance monitoring visits we must have some knowledge of the business profile of our
Members. The industry has made it clear that they expect monitors to be well versed in the relevant insurance products, distribution channels and supporting systems of the Member being visited.
General Insurance Standards Council
I read with interest Peter Wilby's letter ‘IT is in gear' and felt an immediate empathy. I now never travel without IT. When recently driving to Leicester for a renewal meeting, a wasp flew into the car.
I was able to reach for my issue of June 15th and managed to squash it, thus avoiding an accident, so the extra weight was well worthwhile.
Like the wasp, I was very impressed by this quality article. First class.
Keep up the good work.
Grateful as I am for your coverage of complaint matters (Taking off the Gloves, 22 June 2000), I cannot let pass your description of our service as a ‘punitive' consumer complaints scheme, contrasted with the ‘easy-to-comply-with' GISC rules.
Unlike the GISC, we have no powers to discipline or punish anyone. On the other hand I hope we are easy-to-comply-with. We operate informally, fairly and impartially, trying to resolve disputes as far as possible by agreement – a service that adds confidence to the industry, and one that I hope the industry values and certainly has no need to fear.