Levelling the playing field

Considering that we are almost six months down the line and with limited protest from the general broker community, it looks as if the FSA has achieved a fait accompli in changing status disclosure requirements.

Last December, it ruled that direct writers needed to supply personal lines customers with less information about their status than brokers. But is it 'case closed' for this issue?

Certainly, with more brokers pulling out of personal lines, many may feel that this is not an issue worth campaigning for.

But, for brokers who are committed to the personal lines market, there is no doubt that they have been dealt a severe blow.

Telephone sales are now taking longer for those buying through an intermediary - and direct writers no longer have to tell customers that they are being offered products from a single source. This surely puts brokers at a disadvantage.

AA spokesman Ian Crowder points out that in the life industry providers are required to reveal their single provider status and this is, in turn, a benefit to IFAs.

He says: "The independence of IFAs in this environment is seen as having distinct customer benefits and the same should apply to direct general insurance writers and brokers, who fulfil a similar role to IFAs."

Meanwhile, trade body Biba says it will continue to put forward the case for overturning the decision.

Chief executive Eric Galbraith said: "We are alarmed that the FSA has cut back certain insurance conduct of business (ICOB) rules for insurers. We believe that the regulator would be better served in focusing its attention on other areas, such as ensuring that insurers comply with the customer classification, the provision of concise policy summaries and providing renewal terms in sufficient time, so that intermediaries can comply with the 21-day rule."

According to Crowder: "We believe the changes are in direct conflict with the FSA's statutory objectives, which are to secure the right level of protection for consumers and promote public understanding of the financial system.

"The changes have not promoted consumer awareness and, indeed, we have plenty of anecdotal evidence that the different levels of disclosure between brokers and direct writers leads to confusion."

The proposals to make the change were first shown last year in the FSA's quarterly consultation paper CP05/14.

This had a number of amendments to the ICOB rules, including removing the status disclosure requirements for insurers for retail customers. It also stated that it intended to remove the requirement for insurers to provide a 'demands and needs' statement for non-advised sales to retail customers.

The FSA says it went through the full consultation procedure before the changes were made.

Less uncertain
According to FSA spokesman Robin Gordon-Walker: "This was early in the year and we consulted extensively. We are confident that people are less uncertain about the status of an insurance company than a broker, particularly in areas such as motor and home. A broker has an advisory role and shops around initially and at renewal, and from a consumer protection point of view we see disclosure from them as a necessity."

When regulation by the FSA was first imposed, the regulator's original decision was to subject direct insurers to the same ICOB rules as brokers. It said at the time that this was the appropriate decision to ensure consumer protection and avoid confusion. It also created for insurance sales, for all intents and purposes, a level playing field between brokers and direct writers.

Since then, it is understood that the direct writer lobby has made it clear to the FSA that the move was of limited benefit to consumers and the regulator relented by removing the disclosure requirements.

Disclosure for brokers is essential under the Insurance Mediation Directive, but direct writers argue that this does not apply to them.

For brokers, however, disclosure remains firmly in place. This makes for a longer sales process and customers are obliged to listen to trite regulatory messages that few, if any, are remotely interested in.

Crowder is also convinced that the different rules will also muddle buyers.

"From the perspective of customers and in terms of customer protection - and for no reason that would be apparent to customers - they receive different information and documentation depending on whom they purchase their insurance from.

"There is no logic to this and it certainly does not promote public understanding - indeed, it has the contrary effect. Yet nothing has changed that makes it appropriate for disclosure to apply to one channel (such as broking) and not to another (direct) when exactly the same product is being purchased."

Consumer detriment
He says the regulator has argued that there was supposedly no consumer detriment in making the change, but adds: "We feel customers do not appreciate the difference between direct insurers and intermediaries such as the AA.

"In our case, AA literature, policy documentation and all supporting material is heavily AA branded, identical regardless of the provider insuring the risk.

"Indeed the AA behaves in much the same way as a direct writer, except that our role is to find the best quote for a customer from our insurance panel - of over 20 - and advise the customer accordingly. We think customers should know this is very different from a direct insurer."

Crowder argues that the FSA has changed the competitiveness between different channels. "Telephone sales have been hardest hit: brokers must still go through disclosure, taking up time that often customers are reluctant to spend; they have no choice but to listen.

"If they buy their insurance by post they can choose not to read the disclosure information provided and sign the documentation.

"If they buy online, they can simply click the 'I accept' button without reading the disclosure information."

His view is that those buying by telephone should have a choice, whether or not to listen to the disclosure. "After all, the information will be contained in the documentation that follows by post, as it does from direct writers. And if customers are not happy, they have a 14-day cooling-off period during which they can change their mind."

But Gordon-Walker says: "I know Biba is still pushing on this issue and we will continue to listen to trade associations. But, until we are convinced there is detriment, we are not minded to reopen this issue." IT