Regulation: FSA plans to create two-tier structure for ICOB products
By Lucy Quinton
The Financial Services Authority (FSA) is to create a two-tier structure for its insurance conduct of business (ICOB) regime and review its work on protection based products.
In its ICOB review, published last month, the FSA said the differences in the risk of consumer detriment between personal protection products and other insurance products groups were enough to warrant the rebalancing of ICOB.
However, the FSA stressed that it was not suggesting there were no problems for consumers of 'other' general insurance products. Instead, it questioned whether some of the detailed rules and guidance were proportionate to the potential level of detriment consumers of these products face.
The review stated that, when it came to looking at protection products, the FSA would secure better outcomes in markets where it has been shown that they were not always working in the interests of consumers.
The FSA said: "Our work on protection products is not as developed as for other insurance products. The problems in these markets are not as straightforward."
It added that it would like more emphasis on ensuring consumer awareness of key information in sales where there was a combination of oral and written disclosure.
By that, it meant that, in such sales, firms are able to rely on written disclosure to satisfy the FSA's rules. However, the FSA carried out consumer research that showed consumers based their decision largely on what they were told rather than on written material they were given.
As a result, the main effect would be on non-advised sales where initial disclosure took place over the telephone or face-to-face, but the concluding part to the agreement took place after the initial discussion on the basis of information provided in a durable medium, such as post.
The FSA review suggested that firms undertaking sales that currently rely on written information and do not explain key information to consumers would have to change their procedures to ensure compliance with the regulator.
In addition to this, the FSA outlined proposals stipulating that it is considering proposing a new outcome-focused rule on price disclosure, requiring firms to take reasonable steps to ensure that consumers understand the real cost of insurance. This could be accompanied by guidance on different types of insurance.
Simon Webster, managing director at Facts & Figures Financial Planners, however was sceptical this review would be successful. "They previously ignored the situation and now they are trying to sort it out but they will only mess it up more and cost the industry millions in the process," he said.
