Will FSA regulation make a difference to complaints management and claims handling? Deloitte & Touche's Mark McIlquham and Peter Cocker report
The Financial Services Authority (FSA) regulatory regime, both now and in the future, will impact on both companies and brokers in many areas, perhaps most significantly in those of complaints management, claims handling and the outsourcing of regulated activities.
Procedures for managing and resolving customer complaints will form a key component of the FSA's rules and risk management process when it assumes regulatory responsibility for selling general insurance.
One of the FSA's statutory objectives is to protect consumers, consequently it has produced detailed guidance to encourage clients to register their complaints. Since the FSA then monitors the insurer and, in future, will monitor the adviser, what better indicator of potential problems than centrally gathered information about complaints? Should the FSA ever seek to formally publish these statistics, then measures of volumes of complaints, their average resolution times and FOS referral statistics may become benchmarks against which brokers will be measured.
However, for those brokers and companies who have fully embraced the General Insurance Standards Council (GISC) rules, the transition to the FSA regime should be easier, because they should already have an operational, fully documented complaints system with built-in internal controls.
Any FSA- or GISC-compliant system should have the following capabilities:
Although the legislation will undoubtedly have a major impact on GISC members, the impact will be far greater for the estimated 18,000 intermediaries who either have not joined the GISC, or are not fully compliant with GISC rules. These firms have a significant task ahead, reviewing, documenting and improving systems, internal controls and general business conduct.
In addition, many authorised firms have historically outsourced activities such as claims management, which would normally fall within the scope of FSA regulation for insurers. The industry must remember that while provision of activities may be transferred - regulatory responsibility sticks.
This has a number of significant implications for the industry at large, with the largest being that where regulated activities are outsourced, the transferor retains ultimate responsibility to the FSA. This may be particularly onerous where the transferee is not a regulated firm, as, in these circumstances, the regulated entity must satisfy itself and, perhaps more importantly, be able to demonstrate that provision of these services meets FSA requirements.
This could be of paramount importance if, as currently suggested, loss adjusting firms fall outside FSA regulation, while some of their activities do not. Prior to the Competition Commission Appeals Tribunal ruling on Rule F42, the GISC intended that its members who undertook `insurance activities' with an unregulated firm should appoint them as agent to bridge the regulatory gap. It is unlikely that the FSA will allow any regulatory gaps under its regulation.
The administration of claims has significant implications for the way in which intermediaries are paid. At least one regulated entity in the distribution chain will need to assume regulatory responsibility for this activity. At present, this role is among the services performed by many brokers in exchange for fees and broking services.
The Consumer Association undoubtedly wants pure fee transparency. This could be acted upon by the FSA. Brokers would then be required to disclose, and possibly justify, their fees and commission in relation to their activities, which could in turn force a re-design of the traditional service chain. With the proposals for the sector forming part of the Tiner project, we will return to the impact of fee transparency in a later article, when further consultation is sought from the life market. Then we will be better able to assess the potential impact of such proposals.
Mark McIlquham can be contacted at firstname.lastname@example.org and Peter Cocker can be contacted at email@example.com