The FSA consultation document CP187 is a vital document for the insurance industry. Robin Wood focuses on some aspects of Annex 4 that will change the way brokers do business

DURING an average day, the directors and managers of RWA will speak to well over 100 broking clients. One of the key questions that has been posed to those brokers over the last month has been "what is your reaction to CP 187" and there is a reason.

There will be changes to the document before the final Insurance Conduct of Business Rules are published (Annex 4 to CP 187) but not so much that we cannot now say that the FSA has, in the main, revealed how we, as brokers, are going to be expected to behave.

Annex 4 is critical in that it defines in detail those expectations of behaviour and service that will be 'compliant standards'.

Subject to the FSA's response to feedback (or lack of it) these are likely to represent the foundations of the Conduct of Business rules (scheduled for January 2004).

From a learning point of view, it would seem to me incumbent upon all staff within the industry to acquaint themselves with its contents as it relates to them individually.

I want to alert readers to some of the aspects of each of these headings to engender a realisation that the way that we all work will change. The objective is to encourage all practitioners to take time to read Annex 4.

The purpose is to increase awareness of the changes in practice that will be happening across the industry over the next year or so (and why they are happening).

In particular, it is important to create an attitude that is respectful of what the principals and directors of your firm are (or should be) now working on.

Without your help and support, FSA compliance could be that much more difficult to achieve.

Annex 4 to CP 187 is well written and split into rules and guidance. Let us consider the main headings with just a few examples of rules and remember that they apply to business dealings with commercial customers unless otherwise stated:

Application and purpose of the ICOB.

General application1.2 1 Who or what is an insurance intermediary and insurer Guidance:

1) An insurance intermediary, including an insurer, when it carries out insurance mediation activities in relation to a non-investment insurance contract or enters into a distance non-investment contract.

2) An insurer when acting as product provider in relation to a non-investment insurance contract..........

General rules (including unfair inducements)

2.2 Clear, fair and not misleading communications

2.2.2 1) Where a firm communicates information to a customer, it must take reasonable steps to communicate in a way that is clear, fair and not misleading.

2.3 Inducements

An inducement is a benefit offered to a firm with a view to that firm adopting a particular course of action.

2.7.1 The records required in ICOB must be readily accessible for inspection by the FSA.

A record would be readily accessible if it was available for inspection within two business days of a request being made.

Financial Promotions Guidance:
A communication includes: product brochures, general advertising, mail-shots (any media including emails), written correspondence, sales aids which themselves constitute a financial promotion, other communications which may contain non-personal recommendations.

Note: there are five exemptions to this chapter.

Advising and selling standards

4.2.6 Information to be provided before conclusion of the contract or immediately after conclusion of the contract.

Requirement 7

If the contract provided has not been selected on the basis of a fair analysis of the market, that the customer can request a copy of the list of the insurance undertakings that the insurance intermediary selects from or deals with in relation to the contract provided.

Note: there are eight other requirements for all transactions and many others in selected situations.

4.3.3 An insurance intermediary must:

1) ask the customer what his requirements are, collect all relevant information, and explain to the to the customer what he needs to disclose (including what facts the insurance undertaking would regard as material facts); and

2) Ask the customer about any relevant existing insurance.

4.4.1 (1) (b) explain the reasons for personally recommending that contract.

Note: There is excellent guidance at 4.4.5 on how a demands and needs statement should be constructed and at Annex 1G on how information might be conveyed to a customer.

Note: There is excellent guidance at 4.4.5 on how a demands and needs statement should be constructed and at Annex 1G on how information might be conveyed to a customer.

Product disclosure 5.3.12 Where and insurance undertaking is willing to invite renewal of a policy, then no less than 21 days before the expiry of the policy, an insurance intermediary must take reasonable steps to provide to the retail customer in writing with:

....(4) a prominent statement of the retail customer's right to request a new policy document

Note: many sensible requirements to protect the customer (and the broker) are set out under Chapter 5. My view is that Chapter 5 is a godsend to any broker who wants top notch risk management procedures to overcome a considerable area of PI risk.

Cancellation 6.3.1 The period of cancellation for retail customers is:

(2) 14 days for a general insurance contract

Note: This is just one small aspect of the proposed cancellation rules. You should read them.

Claims handling
7.5.4 An insurer must give certain information to a retail customer who makes a claim (1) whether or not the type of claim notified is normally covered by the policy.

7.7.8 Within three months of receipt of a claim for damages form an injured party, or his representative, the motor vehicle liability insurer (directly or through a claims representative )

(a) make a reasonable settlement if liability is admitted and damages have been fully qualified

Note: This is just one small aspect of the proposed claims handling rules. You should read them

Client money and assets

We have commissioned Alex Peterkin to write a special article on this subject as the rules unfold.

So there it is. A snapshot of the sections of the proposed ICOB rules and a brief example of the some of the rules and guidance.

The feedback RWA has had from broking clients generally is that these proposed rules do seem to reflect good market practice and that they are, in many cases, no more than a codification of how the professional broker works and seeks to work.

The fact is that there has been little detailed written guidance on how brokers should 'behave' in the manner that they deal with customers on a day to day basis and everything has been passed down through generations through on the job coaching and mentoring.

Good business practice is a fair definition of what the FSA is seeking to achieve. Hunting through the archives I found a little tome from 1885 published by Ye Olde Aldermanbury Press and entitled, The Insurance Inspector's Hand-book.

It is all there in tea-stained parchment including the instruction to "polish your shoes before visiting a client".

Remember that CP187 remains a consultation paper and there may be changes in certain areas. To encourage further study of CP187, next week's MOT test focuses on Annex 4.

You can download a pdf file copy of CP187 from

Using this CPD page
For the vast majority of practitioners and indeed support and supervisory staff in our industry, CPD is about regular learning and study that is planned, recorded, timed and evaluated.

If you are a member of a professional body with a CPD requirement then there will be certain rules regarding the quality and nature of study material, and the way in which it is recorded.

For staff of GISC members this means recording on your individual training file what the learning was, who provided it and when.

It might be structured, such as a course, a learning programme or exam study. But it can be unstructured. This form of study encompasses reading the trade press, technical material or taking part in activities to support your professional body.

Some CPD requirements are points related (a little antiquated) and others require a time value to be allocated.

For example, it might take one hour to read Insurance Times each week. Most of that could be put as a time value but, in reality, perhaps only an half hour was devoted to learning something. The rule is to be honest with yourself and record the time that is relevant.

Always take time to make a note of what you felt you gained from the activity. This is useful information for anyone else considering the same activity.

In response to the popularity of our CPD programme each week's CPD page can now be downloaded from our website. We will be preparing a binder for you to keep these in alongside the results of the exercises.

To download a PDF of this article as it appears in the magazine click here .