The Financial Services Authority has issued a handbook notice confirming the ‘Age 70' rule will be removed with effect from the beginning of June.
In the 24-page document the FSA says it will remove the age and term conditions from the current definition of a pure protection contract so all long term insurance contracts which do not have a surrender value can be sold under the ICOB regime.
In addition the changes, which come into force on 6 June 2007, will give firms “the facility to continue to sell these products under the Conduct of Business (COB) regime if they choose to do so”.
The FSA says in its quarterly consultation paper CP06/13, published in July last year, it put forward two options for amending the ‘glossary definition’ of a pure protection contract.
It suggested either increasing the current age condition in the definition from age 70 to age 80 or proposed removing both the age and term conditions from the definition, as the effect of both of these proposals would be “to allow certain business that is currently regulated by the investment-based Conduct of Business sourcebook (COB) to move to the ICOB regime”.
Out of 37 responses to the consultation, 26 supported option two, which the FSA says is the more deregulatory of the two proposals and which affects a larger number of policies.
The FSA adds it has “therefore proceeded on the basis of option 2 to remove the age and term conditions from the definition. We do not consider the features of the products affected by this rule change warrant the extra regulatory burden imposed by the COB regime”.
It says: “We are of the view that the ICOB rules and other areas of the Handbook adequately mitigate the risks highlighted in the consultation paper or by respondents”.
The removal of the ‘Age 70’ rule means all term assurance sales will be regulated under the ICOB regime, and in addition, “some whole of life policies, provided they do not have a surrender value, will move across to the ICOB regime”, which will primarily be guaranteed acceptance plans.
In addition the handbook notice confirms the FSA has extended the transitional period for firms to switch from the COB to ICOB regime from six to twelve months.
It says while “the facility to elect to sell pure protection products under the COB regime minimises the need for such a transitional we appreciate that some firms, in particular small intermediaries, will not be familiar with the requirements of this election and we therefore propose allowing firms an extended period of time to make the necessary changes”.
The move has been welcomed by the Association of British Insurers (ABI) which says the decision to apply the same regulations to the sale of life, critical illness and income protection insurances, where there is no investment, will benefit many consumers, in particular older people.
Nick Starling, director of general insurance and health at the ABI, says people now live longer, have a longer working life and start families later, and rising house prices mean many have to spread their mortgage payments over a much longer term, so for all these reasons, the need to have life cover at older ages is increasing.
He adds: “Until now it could be difficult for older people to buy life cover alongside a product such as a mortgage, because the adviser was not qualified to sell products under FSA investment rules. Today’s decision will make products such as life insurance, more convenient for a wider range of people.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected]IFAonline
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