Treasury confirms scope of general insurance regulation

Following extensive consultation, the Treasury has announced that legislation for the selling of general insurance is to be laid before Parliament with the aim of securing Parliamentary approval before the summer recess. As previously announced, regulation of insurance mediation will be implemented with effect from 14 January 2005.

Key outcomes of the Treasury's consultation include:

Travel insurance sold as part of a package will not be regulated.

The Treasury offered three options for travel insurance sold as part of a package (i) no regulation on selling, (ii) self-regulation under industry specific codes approved by FSA (such as the ABTA Code), or (iii) FSA regulation in the same way as stand alone sales of travel insurance. The Government has opted for the first option taking full advantage of the exemption in the Insurance Mediation Directive. Attention will now focus on the precise interpretation of the exclusion and whether FSA's product disclosure requirements on insurers will apply.

Whilst the Government does not consider there to be sufficient justification to regulate travel insurance sold as part of a package, it does recognise that there are concerns about this market. Therefore the Treasury will hold a review as to whether to subject these products to FSA regulation two years after the implementation of general insurance regulation (i.e. early 2007).

All motor warranties, even those with a premium of less than €500 p.a. will be subject to FSA regulation. A decision on non-motor extended warranties has been deferred.

As expected, the Government has included all motor warranties, even those with a premium of less than €500 per annum, but has deferred a decision on FSA regulation of non-motor extended warranties which are contracts of insurance. The Treasury has noted concerns raised about the non-motor extended warranties market and intends to take a decision after the Competition Commission has published its final report on its investigation into the extended warranty market for domestic electrical appliances. The Commission expects to report in the second half of 2003. FSA regulation would only apply to warranties amounting to contracts of insurance, but in CP150 FSA suggests a broad interpretation of what amounts to a contract of insurance which may catch warranties currently provided by unauthorised retailers and manufacturers.

The appointed representatives regime will be extended to cover all insurance mediation.

As expected and discussed at our recent surgeries, the appointed representatives regime has been extended to cover all forms of insurance mediation (the regime currently only covers arranging and advising and not concluding contracts as agent - e.g. as broker for the insured or as cover holder for the insurer). Appointed representatives will also be able to conduct the new regulated activity of "assisting in the administration and performance of insurance contracts". These changes reflect market practice in the general insurance sector where many intermediaries have an authority under which they conclude contracts of insurance as agent (e.g. a coverholder) and should make it easier for firms and individuals to become appointed representatives if they and their principals wish.

The Treasury will consult later this year on the application of the Financial Ombudsman Service to products bought prior to the introduction of FSA regulation.

The Government will consult later this summer on whether the extended Financial Ombudsman Service regime (which will include insurance intermediaries) will be able to deal with customer complaints arising after FSA regulation is introduced, but which refer to insurance products bought from firms which were GISC members prior to the introduction of FSA regulation.

Other outcomes of the Consultation include:

• The exclusion in the Insurance Mediation Directive in respect of the provision of information on an incidental basis in the course of another profession or business has been applied to "qualifying contracts" of long-term insurance (e.g. with profits and unit-linked policies) as well as to general insurance and other long-term insurance. Introducers who also advise or arrange will not be able to take advantage of the exclusion and any introducing activity which goes beyond the mere provision of information would be caught by regulation.
• Claims handling by intermediaries on behalf of insurance companies, expert appraisal and loss adjusting will not be subject to direct FSA regulation. Claims handling on behalf of consumers will, however, be regulated by FSA.
• The financial promotion regime will not apply to promotions of general insurance mediation activities.
• The Financial Services & Markets Act 2000 Part XX regime for Designated Professional Bodies will apply to general insurance mediation activities.
• The proposed streamlining of notification requirements for the controllers' regime for general insurance intermediaries has been maintained.

Amendments to draft statutory instruments

There have been a number of further amendments to the draft statutory instruments published with the Treasury's original consultation document. The activity in the Insurance Mediation Directive of "assisting in the administration and performance of a contract of insurance" now appears in the regulated activities order as a separate activity which transposes the wording from the Insurance Mediation Directive subject to the exclusion for claims managers acting on behalf of insurers. In the previous draft, this activity had been incorporated within the activity of managing investments.

For further information please contact:

Paul Edmondson
CMS Cameron McKenna
T: +44(0)20 7367 2877
[email protected]

Nick Paul
CMS Cameron McKenna
T: +44(0)20 7367 2806
[email protected]