In the run up to the election, there are changes on the horizon for regulating insurance, particularly in the area of consumer protection.
These changes are coming from the regulators themselves and, more radically, from the Conservatives.
For some time the FSA, OFT and FOS have had a ‘Wider Implications Process' which aimed to encourage co-operation and co-ordination between them. In practice, it has been largely ineffectual. Consumer bodies have only raised one issue that has been taken forward, while firms and industry bodies have raised none. Instead, such issues have been dealt with reactively off-line on a case by case basis - for example in successfully achieving agreement of the reviewability of critical illness insurance premiums - or, from the regulators' perspective, the unfinished business of PPI and the failure on bank charges. It is probably this that has driven them to consult on a new Consumer Complaints Co-ordination Committee (CCCC).
The committee's role would be to look proactively at emerging risks that are likely to result in mass claims if action is not taken. Rather than waiting for others to suggest potential issues it will come up with them itself. At this point it may seek views from firms (or industry bodies) and consumer bodies to set a timetable for regulatory action. As a rule of thumb, it is likely to look at issues that involve (or are likely to involve) a number of firms, 5,000 or more FOS complaints, and a similar underlying cause. If this process is adopted it will be vital for the industry to set up its own arrangements that attempt to get there first. Potential problems need to be surfaced well before they reach the CCCC.
All this will be academic if the Conservatives get in. They are proposing the abolition of the FSA, moving its prudential functions to the Bank of England, and creating a strong new Consumer Protection Agency with responsibility for protecting consumers. They will also move responsibility for consumer credit regulation from the OFT to the CPA. Although regulating IFAs does involve prudential judgement, the Conservatives state that they will be regulated by the CPA. Insurers will be regulated by the Bank of England and the CPA.
So what do the Conservatives expect the CPA to look like? Its mandate will be to act as a consumer champion and to be a far more consumer-orientated, transparent and focused body than the FSA. It will name and shame firms which ‘break the rules' to act as an incentive for them to improve their behaviour. It will also disclose any action it takes against misleading financial promotions and require firms to publish more information about the complaints they receive, and how they are dealt with. The CPA will make all this public. Its governance will also be different as the CPA Board will contain at least two members who will be appointed to ensure that the consumer perspective is fed into the whole of its policies. It will also face regular examination by the Treasury Select Committee and the National Audit Office will assess its performance and value for money.
Looking at the post election situation, between the two main parties, we can therefore expect either an enhanced new body which will hit hard on ‘scandals' or at a complete rewrite of consumer aspects of regulation - preceded by several months of chaos while systems are changed. Fortunately the Liberal Democrats have attacked the Conservative proposals as half baked and confusing. Bring on a hung Parliament?
Richard Walsh is a director and fellow of SAMI Consulting www.samiconsulting.co.uk
