Waking up to confusion

' There's no hiding from the fact that the results of the 2005 Skills Survey are truly shocking. Whether the issue is cold calling, product disclosure, or the reconciliation of client monies, the majority of respondents simply don't have a clue as to what the current regulations are.

With the number of correct answers not even reaching 50% for six out of the seventeen questions, a considerable gap in regulatory knowledge exists.

According to Lucy Courtenay, standards accreditation director at the Financial Services Skills Council (FSSC), the survey is "a bit of a wake-up call" for the industry, with a number of areas of real concern.

"There are some cases where the answers given actually go over and above the current requirements, such as the answer to question 3, where some people thought that a firm must maintain appropriate employee records after cessation of an employment appointment for four or five years, when it's actually three. But then again 15% said only two years, so that's a bit worrying."

Exam requirement
There also appears to be considerable confusion as to what sort of knowledge is expected under the new regulatory regime and exactly how this knowledge will be tested.

She explains: "A quarter of those surveyed thought there was an exam requirement for general insurance. Maybe their own firms have some sort of regulation that an exam needs to be passed, but if they don't you do wonder what they're studying for."

A particular area of concern, she says, given all the press overage that the advent of statutory regulation has received and the importance it holds for the industry, is the lack of knowledge as to its guiding principles.

Question six asked people to select which of the answers gave the correct statutory objective for the FSA, and only 49% of respondents gave the correct answer: to reduce financial crime. According to the FSSC, the insurance industry, even if it does fall short on many of the details, should really be aware of what the regulator's objectives are.

The survey also reveals that the issue of client money continues to be one of the most difficulties areas for the industry. The confusion is such that the question concerning the reconciliation of client monies provided the worst response in all of the survey. Only 28% of respondents were able to answer the question relating to the date on which reconciliation should occur from the date on which the client money resource and requirement was determined.

"Where people have scored low concerns client money, and the lowest average mark concerned the issue," explains Courtenay, suggesting that there are legitimate reasons for such ignorance: "It's a valid question but it is a rule that was removed from the rule book."

Yet the level of ignorance over client money throws a spotlight on the regulator, which has vacillated over the issue and has been criticised in some quarters for not providing clearer guidance. Does the FSSC believe that the FSA could have done more in this regard?

"There is a lot of info out there and it's difficult for firms to sift through," she says, pointing out that the FSSC believes it has an important role to play in helping to disseminate better information than might be provided by individual brokers or insurers.

"We have forums for large employers and smaller ones for local employers where firms can come along and share best practice. It's really an opportunity to talk about common issues."

Despite the poor performance in the survey, Courtenay is keen to point out there are mitigating factors. "The person filling in the survey might not be the person responsible for these areas in their business," she comments.

"We put together the questions which test what's new under FSA regulations, and we did this thinking this might be an area we could follow up later with trade associations, professional bodies and e-learning companies.

"But the questions are really quite broad and concern new areas of knowledge. They don't test core technical insurance areas, and respondents may be more comfortable with such core insurance knowledge."

Without a breakdown of individual marks, she adds, it is difficult to assess what the average mark was, though it seems unlikely that many people were able to match the FSSC's requirements, which is normally a pass mark of 70% for a similar multiple choice test.

Demonstrate competence
So far it is true that the FSA has decided not to introduce the requirement for intermediaries to pass an examination, but it has not ruled out the possibly and many believe that it is only a matter of time.

Besides, as Courtenay points out, exam or no exam there still exists a requirement for those working in insurance to demonstrate sufficient levels of competence, and on these findings such levels look to be pitifully low:

"The survey does show that there isn't a sufficient level of competence within the industry- and that on this basis it does fall short of FSA requirements."

There is clearly a need for better guidance, and not unreasonably the FSSC feels it is the right body to steer the insurance industry in the right direction. IT

Ten top tips from the other side
Mary Greene, business development and research director for the Financial Services Skills Council, looks at some regulation pitfalls that people working in general insurance may encounter.

She bases her experiences on the life and pensions sub sector when the FSA regulatory environment was first introduced.

She says: "The FSA will offer guidance but companies have to set their own policies and procedures which reflect the nature of their own business, in line with this guidance.

"The most important factor is to keep accurate records as evidence and ensure that all procedures are fully documented and followed ruthlessly!"

1 Poor record keeping- i.e. no records of accompanied visits or any development/ non competence areas identified.

2 Development/non competence areas not followed up and closed off.

3 Pattern of development areas or non competence not identified by supervisor.

4 Knowledge fade not accounted for.

5 Testing not robust i.e. same test used for second or third attempts, not all areas tested and no clearly defined process on how many times a test can be taken.

6 Field visits not documented. No face-to-face appointments between salesperson and client.

7 Field visits not debriefed or signed off.

8 Field visit not being undertaken to the required frequency as defined in the training and competence scheme (for instance, the FSA does not set out specifics). It is left to the company to set its own scheme. The danger comes when the FSA visits the company and discovers that criteria are not being met.

9 Field visit not being undertaken to the required frequency as defined in the training and competence scheme (for instance, the FSA does not set out specifics). It is left to the company to set its own scheme. The danger comes when the FSA visits the company and discovers that criteria are not being met.

10 Reason why letters not justifying why advice given.