Branko Bjelobaba says there is confusion and concern in many areas, but brokers must tell the FSA
I was in the audience at the CII Conference when Clive Briault, managing director of retail markets at the FSA, announced a review of general insurance regulation which would start in April 2006.
He stated that the review will be built on three core features:
The FSA will aim to feed back the initial findings of the review towards the end of 2006.
What are my reactions? It is good that the FSA recognises that a review early on is good. It has undertaken a considerable amount of work to see how its rules are being understood and then implemented at the coalface.
It has concentrated on key areas, such as payment protection insurance (PPI) and client money in addition to the new (but instinctive, one hopes) buzz words of 'treating customers fairly'.
PPI is of great concern and understandably so - perceived poor value products, complex wordings, a huge array of exclusions, and whopping levels of commission which are unheard of in general broking (70% plus).
So what about the other points? Have consumers seen much improvement since January 2005? I have undertaken my own straw poll with friends and relatives to add some substance to my own thoughts.
They all talk about the introduction of more paper and wonder why this has happened, as well as wondering what needs to be read and what is actually important.
They are spot on. There is a lot more paper. Invariably there will be a covering letter, an initial disclosure document or terms of business agreement with a statement of demands and needs, a policy summary and then a policy wording.
The length of summaries has been talked about before. Briault made the point that "less is more" and typically a summary would contain what was said during a telephone conversation and that it would not run to 14 pages (or would it?).
So has the general broking industry warmed to the FSA? I am still of the view that many firms have tried their hardest and are well on the way to operating in a compliant way, which is good for business, staff and clients.
Yet some have done very little, if anything. There is a lot of confusion around solvency, client money, selling rules and the retail mediation activities return (RMAR).
Confusion is understandable where the rules are unclear, hard, or impossible to understand (or even implement). Two sourcebooks that are ripe for an overhaul are client money, the client asset sourcebook (CASS) and the selling rules, insurance conduct of business (ICOB).
CASS is very difficult to understand and engage with. This is the view from the accountants - not the poor brokers that have to work with it on a daily basis.
A clear message must go back to the FSA to the extent that we must have good and clear rules where 'real' client money is at stake. This does NOT include insurer money which is held under risk transfer arrangements).
In the work we do as consultants, we still come across firms that do not have proper client accounts set up or fail to do the right reconciliations at the right time.
One area that I have stressed is their need to prepare audited (or statutory) accounts. Generally, if a firm has a turnover (commission income) of less than £5m it can continue to benefit from the small firms' audit exemption. But to do this it needs to 'accept' a waiver by consent - and this fact is buried some five pages away from the home page on the FSA's website.
ICOB continues to confuse and for starters, the definition of retail and commercial customers must be looked at, as it is very confusing.
I am a retail customer with one very good broker and a commercial customer with two other brokers - both of whom did not provide me with a statement of demands and needs a few months ago when I renewed my PI and office policies.
Just as we have a clear initial disclosure document, with a template issued by the FSA, we need clear guidance, especially for insurers, on what should sit in a policy summary.
Many people wonder what the industry has done to deserve what we have now. I ask them whether they wrote to the FSA when it was consulting. The answer is always 'no'.
All of us should now think about what works well and what doesn't, and ask our clients the same question. Then, next year, we should tell the FSA so it can start the process of reviewing and amending rules that do not work or ones that could work better.
Better for the FSA and better for all of us. IT
' Branko Bjelobaba is director of Branko.
Further information at www.branko.org.uk .