Consultant Huntswood is quoting FSA figures showing 30% of firms registered for general insurance regulation had not applied for authorisation as of 22 November, as part of its research into the new general insurance regime starting this weekend.
Added to this are fears tens of thousands of businesses such as doctors surgeries, veterinarian practices and dental clinics could be caught out by rules governing advice on, and sales of, general insurance because they simply are not able to determine whether they are covered by the rules.
For example, confusion rules discussions over at what point exactly such businesses start to “sell” insurance or give “advice”, given the presence of leaflets in waiting rooms advertising, say, pet insurance.
Other businesses such as travel agents or high street electronics stores are covered by opt-outs from the regulatory regime, further confusing other types of businesses such as car dealers that are not.
Businesses are possibly able to carry on trading without authorisation as long as applications are lodged by 14 January, Huntswood says, while other firms may not have bothered because they do not know they are covered by the new rules.
Overall there are still many unknowns about just how effective the new regime will be in practice, says senior consultant Andrew Wheeler.
We’re in the discovery stage. Next will be the investigating stage then it will move into the remedial stage”
The numbers suggest the FSA faces a huge workload ensuring that any firms or individual intermediaries who have decided simply to flout the law are caught in the interests of consumer protection.
Cost may be a major factor in some firm’s decisions not to bother obtaining proper regulatory approval. Huntswood’s research suggests compliance costs for both providers and intermediaries have jumped 25% on average just to deal with preparation ahead of GI-Day.
Post GI-Day costs are expected to be 39% higher on average, although brokers expecting post-implementation costs to run 89% higher – larger brokers expect costs to rise 143%, according to Huntswood’s figures.
So far, Huntswood sees businesses falling into one of three groups: those overspending to ensure they minimise all elements of risk in the business; those authorised or otherwise able to trade after GI-Day, but that are yet to close the gap on what would be considered minimum standards; and those intent on trading illegally.
Surprisingly, the FSA’s focus on “policing the perimeter” of the market may come at the expense of the regulator’s statutory duty to also educate consumers about their rights to complain.
Arguably ensuring providers and intermediaries operate within the law is a good way to beef up consumer protection says senior consultant Andrew Wheeler, but it is a different way from making sure consumers can try to protect themselves through increased education of their rights.
This area could come under scrutiny because of implications for PI claims by businesses hit by the Financial Ombudsman Service for not having adequate regulated status in face of a consumer complaint.
Besides trying to weed out the ignorant or the criminal, the FSA may also look to issue such as handling of client monies and the issue of risk transfer between brokers and providers.
Co-called “binding authority” and “on-risk” in relation to policies, which hitherto have often been subject to “gentlemen’s agreements” may also become subject to stricter demands for handling risk.
Quality of claims and claims fraud management systems will also become subject of further FSA inquiries, Huntswood believes, as it starts to look at, for example, use of voice stress testing software as an option to improve claims handling industry-wide.
Exact measures to improve the regime will only become known once the FSA has been able to collect sufficient data from the general insurance industry, Huntswood concludes.IFAonline
Three years at Wells Fargo
Effective from 9 December 2019
One firm with permission suspensions left
Continuing the Architas education series for clients.
Needs to apply for authorisation