With 2007 testing the mettle of the British public with the Northern Rock crisis and a predicted credit crunch, Peter Carvill looks to the year ahead and hears views from some industry commentators.
As one year ends and another begins, the protection industry is looking forward to the events, announcements and changes that are going to influence 2008.
The New Year kicks off with the Association of British Insurers' (ABI) new initiative to finally resolve the issue of declined claims. Jonathan French, ABI spokesperson, was reluctant to discuss the finer details of the initiative ahead of the launch but he did confirm that new processes of best practice will be included.
French says: "In a nutshell, this is about building on the work the industry has been doing on declined claims and it builds on work we have done with the Financial Ombudsman Service (FOS) and it also links in with the Financial Services Authority's (FSA) Treating Customers Fairly (TCF) regime. It is about how insurers deal with non-disclosure of pre-existing conditions at the point of a claim being made, and it will make it clearer for companies dealing with these cases. It will also hopefully reduce the number of claims being denied. Simple as that."
As COVER was going to press, the planned publication date for the FSA's revised Insurance Conduct Of Business (ICOB) sourcebook came and went after the regulator decided that further dicussions were needed before it was published. The sourcebook will set out the standards for how firms deal with their customers, and is expected to further the FSA's move to principles-based regulation for general insurers and tighter practices for the protection industry, including improvement in the sale of payment protection insurance (PPI).
sticking to the script
While the delay could affect the implementation date of the new regulation, it is hoped it will come into force in January. Following its publication, every provider, intermediary and broker will have to ensure that they meet guidelines within six months. The concept of principles-based regulation is that there will be no set rules for those affected but, instead, core values that the insurance and protection industries are expected to uphold.
Talking about the changes, Shaun Mattison, chief executive of PruProtection, says: "We think the new ICOB changes that move to a more principles-based approach both support and encourage innovation. In both the health and protection markets, innovation is absolutely critical to making sure we genuinely offer products that people want to buy."
Looking at other regulatory changes, in order to effectively implement TCF, the FSA has set deadlines of March and December 2008. By the first one, brokers and intermediaries have to be able to demonstrate that they have appropriate management information in place to check whether their customers are being treated fairly. The second deadline, which is liable to shift because of the delay in publishing the revised sourcebook, is presently set for December 2008, or six months from the first TCF deadline. The second date is the point by which it must be demonstrated that consumers are being treated fairly. After extensive work in preparing the protection industry for the advent of TCF, the FSA says it will take a dim view of those it believes are not working to the core principles. Underperforming companies will soon find that they can run but they cannot hide.
Between the TCF deadlines, PPI will come under new scrutiny as the Competition Commission reports its findings in May.
The Commission's investigation began after a complaint from Citizens' Advice was referred to the Office of Fair Trading. The investigation will examine "insurance services supplied for the purpose of protecting a borrower's ability to maintain credit repayments", but will exclude PPI for store cards, which has been investigated in the past. In examining sales of PPI, the Commission will seek to ascertain whether any facet of the market, or combination of facets, adversely affects competition.
Matt Morris, policy adviser for LifeSearch, welcomes the Competition Commission's investigation into PPI but cautions that it will take a firm hand to bring about effective change: "The banks and mortgage lenders make an absolute fortune from PPI, and a lot of the time the customer would be better off with a different product. The banks aren't going to change unless it is prohibitive to sell PPI, and mandatory for customers to be told about their protection options. The cynical view is that the cost will be passed onto the consumer through higher charges."
Crunch time
Along with these set events, the industry is set to be impacted by other happenings in 2008. The widely-predicted credit crunch, whose ripples have already been felt in the UK by the public meltdown of Northern Rock at the end of last year, is liable to have a wider impact on the protection market too.
At the end of last year, Standard Life announced that it had decided to leave the protection market, while at the same time, Scottish Widows withdrew its protection range from all the portals, suggesting it will soon follow in Standard Life's footsteps. This does not bode well for the industry. However, with large insurers such as Fortis expected to enter the protection arena early this year, the sector is likely to benefit from the shift.
All in all, it looks like 2008 is going to be an eventful year and, coming out of the other side into 2009, will be a much transformed industry, defined by new regulation and building on its successes and failures of previous years. n
