On 14 January general insurance regulation will have been in place for a year. What effect has regulation had on the insurance industry - and have we seen any tangible results?
Market views
Peter Chadborn, CBK
The view on the effect of general insurance (GI) regulation will depend on who you talk to and will vary according to what level of regulation they were used to before 14 January 2005.
As a previously fully regulated firm, we have seen little change in day-to-day activity apart from a couple of extra regulatory forms to check we are doing what we have always done.
Conversely, advisers I speak to who were previously non-regulated have seen significant changes in the advisory process.
The requirement to demonstrate they have assessed their client's complete financial planning requirements has had a demonstrable effect on their business levels due to the added regulatory burden.
The tangible results we have seen are the increased number of Insurance Code of Business (ICOB) advisers who have contacted us with a view to outsourcing areas of advice which they do not cover, such as investment and retirement planning. They are therefore ensuring their clients' complete financial planning requirements are being addressed and ensuring that, having made their clients aware of other areas of need, there is less chance of their clients seeking advice from a competitor.
This increased requirement to comprehensively justify the reason for the recommendation has hopefully made all advisers consider their advice in greater detail, for example by researching a product's features and flexibility more thoroughly and the relevance of provider service and processing levels.
I have long advocated this approach over the misguided opinion that the best advice is about providing the cheapest quote.
Steve White, BIBA
It was clear during the application process last year that most intermediaries were taking the process very seriously and we have seen no evidence to suggest they are not continuing in the same vein.
During the first year of regulation, client money has probably been the most debated area of FSA policy. The regulator has conducted thematic supervisory work in the wholesale and retail sectors on this subject and has treated this as its priority to date.
The ICOB rules and the various disclosure documents have forced intermediaries to revisit their sales processes. The problems of over-lengthy policy summaries have been well documented, but intermediaries have often struggled to get to grips with the content and timing requirements of the other documents, especially in respect of renewals.
One of the most noticeable changes for intermediaries with the new FSA regime has been the requirement to submit the Retail Mediation Activities Return (RMAR). A combination of system glitches at Canary Wharf and a lack of clarity in respect of certain sections of the RMAR have given many intermediaries sleepless nights.
In addition to specific rules, FSA regulation is underpinned by principles. Two of these - managing conflicts of interest and treating customers fairly - have been highlighted by the regulator as areas where firms need guidance and to look again at their systems.
While FSA regulation has involved an increase in costs, both one-off and ongoing, it is clear we are seeing firms become more aware of the need to plan coherently, to formalise processes and systems, to apportion responsibility for day to day activities to the appropriate manager and to be able to show that their business is succeeding by design, rather than by luck.
As time goes by and the benefits of implementing appropriate processes and procedures become apparent, intermediaries are likely to consider regulation a good, albeit expensive, thing.
Branko Bjelobaba, Branko Ltd
Some in the industry have embraced the FSA, whereas others have yet to open the cover of the handbook or load the CD-Rom on to their PC.
I doubt customers have warmed to the FSA. So far, they have noticed a lot more paper and, in a complex area of insurance such as PMI, lengthy summaries and explanations.
Then there is an FSA review in April 2006. My wish is that the regulator will make things a lot easier to understand. This would make contemplation and implementation much easier. The review cannot really touch what is in the Insurance Mediation Directive but I hope the FSA starts to engage with the issues that are causing more concern and delivers regulation that is appropriate to the sector.
One area causing concern for small firms is the need to do detailed financial statements every six months. The FSA assumed firms keep this information, but having handled many on behalf of Association of Medical Insurance Intermediaries members I know this is not the case.
Extra cost and panic is involved in getting this done within the six weeks following the end of the reporting period. For small firms there is no need, in my opinion, to do this twice a year - once is enough.
Alex Moors, Norwich Union
Regulation has not dramatically changed the overall level of business transacted through intermediaries.
There has, however, been a certain degree of consolidation and the number of insurance intermediaries registered under the FSA is lower than in 2004.
Undoubtedly, regulation has had a significant impact on many intermediaries, some of whom have had to undergo a major re-evaluation of the way they do business.
In our experience, IFAs have responded by turning to networks and IFA organisations that can provide regulatory expertise and support as well as access to products and services from insurers.
Norwich Union has been happy to work with these organisations as insurance provider to their members.
Tangible benefits are probably less visible in the short term. However, Norwich Union welcomes consumer legislation that puts the insurance buyer at the heart of what we do and FSA regulation is an ongoing and evolving issue.
We need to remember that FSA regulation did not start and end on 14 January.
