PERSONAL FINANCE: New Regulations Affect Everyone; Regulation of the Insurance Industry Yesterday Became the Responsibility of the Financial Services Authority. Steve Boughton of BHSF, the Birmingham Health Insurer, Looks at the Change
January 14 was an important day for insurers, brokers, policyholders and anyone thinking of buying an insurance policy.
Until then general insurance companies were regulated for 'prudential purposes' only. In other words, their financial soundness was supervised, but their selling practices were not.
Brokers were not regulated by the FSA, but those who chose to could join one of several trade bodies on a voluntary basis. Unfortunately, this voluntary approach failed as the result of arguments between two of the most influential bodies and the FSA felt compelled to step in.
Most people outside the business will notice little immediate change, but the new regulations will affect everyone who buys or sells general insurance.
What will it mean from the customer's perspective? Like most regulations, there are good and bad aspects.
On the plus side, all insurers, brokers and advisers must now be authorised by the FSA and there are stringent tests which must be passed before authorisation is granted - including financial strength, soundness of management and competence of sales people. This should provide the customer with confidence that they are being given proper advice.
New rules will ensure that customers have the relationship between themselves, the broker and the insurer properly explained and that brokers keep clients' money properly separate from their own.
Customers will also have to be given a summary of the policy terms at a very early stage, which should remove a lot of the confusing jargon and help them to understand what they are buying.
All this is good, but there are a number of aspects to the new regulations that give concern. Many are technical, but two impact directly on customers.
First, there are worrying signs that the authorisation process is less than perfect. According to statistics released by the FSA in December, over 4,000 firms who had asked for application packs had not actually applied.
A high percentage of firms which make insurance broking their main business had applied, but some had not. …