UK insurance premiums are set to rise following the Financial Services Authority's takeover of responsibility for regulating general insurance sales, advice, administration, and arranging.
In a move to protect customers, strict guidelines on advertising and selling policies will be introduced and only firms authorized by the Authority will be able to trade. However, the changes have caused concern amongst insurance companies as the added protection will mean more red tape for companies and greater costs for customers.
The move is a major extension of the FSA’s role, involving the direct supervision of thousands of firms and affecting some 35 million UK consumers who take out or renew 77 million policies each year for home and contents, vehicle, medical, payment protection and other types of general insurance.
Among the many changes will be a requirement for companies to provide clearer information for consumers about general insurance policies through newly introduced ‘keyfacts’ documents.
Consumers will be able to compare insurance policies with clear information on any significant and unusual exclusions, understand the nature and cost of the policy they are buying and have access to the Financial Ombudsman if they have a complaint.
One of the FSA’s first priorities will be to crack down on any unauthorized firms continuing to sell and arrange insurance, according to the FSA chief executive, John Tiner.
Details of firms regulated to conduct general insurance business – either directly authorized or as appointed representatives of authorized firms – have been placed on the FSA Register. This information enables insurance companies and customers to check whether the firms with which they are dealing have the appropriate authorization.
The total number of directly authorized firms able to conduct general insurance business is currently 18,130 to 13,291 new authorizations and 4,839 variations of permission. In addition, authorized firms with a general insurance permission have a total of about 22,000 appointed representatives.
Applications from a further 941 firms are still being processed. Under arrangements announced by the government last month, these firms can continue to sell or arrange general insurance on an interim basis until a final decision is reached on their application. It will be illegal for firms that did not submit complete applications to the FSA by midnight on January 13 to carry on business.
The new regime also applies to wholesale general insurance business conducted at Lloyd’s of London and through the London Market.
The FSA has been working on the new regulation for almost three years, based on the EU Insurance Mediation Directive and the government’s decision that the FSA should be the statutory regulator of general insurance. Based on independent research involving interviews with a sample of firms in the general insurance industry, the FSA estimates that insurance regulation will cost GBP2.80 for each insurance policy.