General Insurance Brokers
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1.
FSA conclude that TCF is a ‘cultural issue’
2.
Always check your letters before issue
3.
How secure is your retail customer data?
4.
Counting on Goodwill …..does a holding company still hold answer?
5.
FSA sets out principles based future for general insurance regulation
6.
Contract Certainty – it won’t go away!
7.
Client Money – non-statutory trusts and Scots Law
8.
FSA to regulate all travel insurance from January 2009
9.
E-learning: Client money for general insurance intermediaries
10.
Wholesale Intermediation Commission Disclosure Review
Ladies & Gentlemen
Please find enclosed the latest compliance and industry news.
As usual, sit back and enjoy!
Kind Regards
ateb consultants
Which article applies to me?
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1.
FSA conclude that TCF is a ‘cultural issue’
The FSA are of the opinion that TCF is a cultural issue.
They recently published 'Treating customers fairly – culture' and 'Treating customers fairly - a guide to management information'.
The culture paper contains the culture frameworks which they have developed for supervisors to use when assessing the risk a firm's culture presents to treating customers fairly. The frameworks are based on factors or ‘drivers’ which they believe have a significant influence on behaviours in firms.
The management information paper has been produced to assist firms as they consider how to meet the March 2008 deadline (i.e. have appropriate management information or measures in place to test whether they are treating their customers fairly). The FSA have included some examples of good and poor practice on MI in this publication.
The FSA have stated that where they are satisfied that a firm has robust systems and controls and the senior management are reviewing and using reliable MI which demonstrates that they are treating their customers fairly, they will significantly reduce the level of testing they (the FSA) carry out on the firm’s culture regarding treating customers fairly.
| Ateb view: |
| We think they may have hit the proverbial nail on the head with this one! |
| Action required by you: |
ATEB have just updated its TCF review document for use by firms and will look to discuss the content of these documents with firms over coming months. More information is available at:
http://www.fsa.gov.uk/Pages/Doing/Regulated/tcf/index.shtml |
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2.
Always check your letters before issue
A firm received an unfortunate complaint recently following an administration error.
The background behind this complaint involved a client who been made redundant. She had examined her insurance demands and needs statement which indicated that she was covered for redundancy. This however was a clerical error, the demands and needs statement had been issued based on a template and the firm had omitted to delete reference to redundancy.
As part of the complaint investigation we could not rule out the possibility that the adviser has mistakenly believed that the PHI policy did indeed cover redundancy. When we examined the fact find we found that the relevant section had been completed incorrectly and so consequently the written evidence was inconclusive.
Based on the advisers experience and statement the firm are likely to defend this case, however the outcome is debateable.
Needless to say this episode of events has cost the firm time and money and frustratingly it could have been avoided. The firm has now amended its procedures to ensure that this situation does not reoccur.
| Ateb view: |
| This was an easy mistake to make, however a correctly completed fact find (detailed file notes) would have eased matters considerably! |
| Action required by you: |
| Have a check in place before issuing letters to clients, particularly where you use templates and as always take care to gather and record know your customer carefully. |
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3.
How secure is your retail customer data?
The FSA have commenced a review looking at the treatment of retail customer data. The review, which will look in detail at about 40 firms of different sizes across the financial services sector, will focus on the methods firms use to prevent the loss or theft of retail customer data by employees and third party service providers. The FSA plan to cover the following subjects as part of their review:
- Policies and procedures relating to the security of retail customer data
- Senior management involvement in ensuring the security of retail customer data
- Whether firms are assessing the risk of retail customer data compromise and putting in place sensible and proportionate measures to mitigate the risk
- Controls over retail customer data held in electronic and manual systems
- Controls over the disposal of unwanted retail customer data in electronic and manual systems
- The access to and use of retail customer data by third parties used by your firm such as outsourced call centres, administrators and marketing agents.
Firms are asked to supply information in preparation of the FSA visit which includes amongst other items, a request for risk assessments conducted or internal reports covering retail customer data security in the last two years.
| Ateb view: |
| We are not surprised by this move, certainly with the amount of identify fraud and related crime ongoing at present. |
| Action required by you: |
| As smaller firms will have only basic procedures in place to deal with securing customer data, maybe this is an opportunity to review things. |
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4.
Counting on Goodwill …..does a holding company still hold answer?
When regulation of general insurance brokers was planned the FSA gave in to pressure and created a breathing space for firms where goodwill was included as a capital asset. This meant that until January 2008 (it seemed such a long way off in 2005!) firms could count goodwill as an eligible asset when calculating their capital resource requirements. From January 2008 this will no longer be possible.
Many firms did not use goodwill in this way but if you did and have not made provision for this then something needs to be done. For many firms the three year period gave them opportunity to build up assets by way of retained audited profits to compensate. A subordinated loan may also be used to contribute. (See your ATEB consultant.) Personal assets can be used if not a limited company. Issuing and paying up of shares may be an option or converting of directors loan accounts. Also converting from a non-statutory trust client money account to a statutory trust client account may help some firms. (Again, see your ATEB consultant.)
One specific major problem arises where a firm has bought another broker firm by purchasing the goodwill of that firm with a loan. This means that the firm has a debt against it but from January 2008, no goodwill to offset this.
One way of resolving this issue has been the idea to pass on both the goodwill and the debt to a holding company or a non-regulated firm within the Group. This seemed a satisfactory solution all round. However the FSA have now stated that although there is no reason why this should not be done and that the capital resource requirements only apply to an authorised firm, they will be looking at the financial standing of the holding company/Group when assessing the financial resources of the authorised firm. They refer to Principle 4 (regulation by Principles again) to justify this. They are non-specific at the moment but state that “the consolidated position of the group as a whole will be a relevant matter”.
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5.
FSA sets out principles based future for general insurance regulation
In June 2007, the FSA published a consultation paper proposing to reform the rules that firms need to follow when carrying out general insurance business with customers.
These proposals have arisen because the current rules cover not only typical general insurance such as motor or household, but also non-investment insurance (protection) products, such as life assurance and critical illness, more typically sold by IFAs and mortgage brokers. The FSA is concerned that the selling practices used for the latter products is not always of sufficient quality.
It is therefore proposing that the new regime will allow a more principles-based approach for true GI products (while non-investment insurance products are likely to attract additional rules).
While this will mean more flexibility for GI brokers, the FSA will require the same standards of conduct and essential consumer safeguards to remain.
Following the consultation, the new general insurance regime is likely to come into effect in January 2008 with firms being allowed a transitional period for implementation.
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6.
Contract Certainty – it won’t go away!
Ok, so you all know what this is now, but how many of you have taken the proverbial bull by the horns and implemented robust systems?
Quick recap: You will have customers who want insurance cover at short notice. You do this, sometimes with limited information. Mostly this works well, with no issues. Sometimes however, as a result of the limited timeframe and level of information available, the customer may be unsure of the level of cover they have or require, or perhaps the insurer did not know the exact cover requirements. Theis can result in ‘contract uncertainty’.
Obviously, this can lead to disputes should there be a claim. To help avoid disputes from uncertainty, the insurance industry has produced a code of good practice to help provide ‘contract certainty’ before the cover starts.
Although not compulsory, most of the insurance industry has agreed to abide by the code from October 2005. The initial code sprouted various incarnations, particularly in the London subscription market, leading to inconsistency and confusion. The Lloyds Market Reform Group agreed to sponsor a rewrite and consolidation of the code into a single code of practice that related to the entire UK general insurance industry. This has been agreed by various industry associations.
The ABI have published the updated code (as at June 2007) which is available at:
http://www.abi.org.uk/Display/default.asp?Menu_ID=1141&Menu_All=1,946,1141&Child_ID=576
The objective of the code is not to stop the insurance industry reacting quickly to the urgent needs of customers, but to see to it that there is a form of contract agreed when protection starts, even though it is accepted that there may be a need to agree changes to the exact terms of the contract when both parties have full knowledge. However, “terms to be agreed” or similar references should not be used.
| Ateb view: |
| Our initial view is that this consolidated code is somewhat of a sledge hammer to crack a nut, driven primarily by the needs of the London market, without proportionate consideration for regional brokers. However, this issue is not going to go away and it is at least a definitive code (for now!). |
| Action required by you: |
Brokers have acted in varying degrees to address the contract certainty requirements, with proportionately varying degrees of success. Now is the time to take that proverbial bull by the horns. We suggest you:
- Analyse the new code so that you fully understand the requirements
- Have a good look at the suggested checklist
- Decide what areas of your business are most affected, possibly particular markets, particular insurers
- Decide how best to implement the code with minimal interruption.
This one is not going to go away! |
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7.
Client Money – non-statutory trusts and Scots Law
The FSA have been reviewing the legal arrangements relating to the way in which some general insurance brokers in Scotland hold client money.
Some insurers have issued Terms of Business Agreements (TOBAs) to Scottish general insurance intermediaries allowing them to hold client money in non-statutory trusts. This form of trust arrangement is not, however, recognised under Scots Law. The FSA are raising this issue with the Association of British Insurers (ABI) to ensure that insurers dealing with Scottish intermediaries understand the legal position and make the necessary changes to their TOBAs.
| Ateb view: |
| You could describe this as a ‘small oversight’ 2 ½ years into regulation? Others may have a different expression to describe it! |
| Action required by you: |
| Insurance intermediaries that believe they are affected by this issue should take up this matter with their legal advisers and insurers to ensure that their client money arrangements are legally robust. |
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8.
FSA to regulate all travel insurance from January 2009
Currently the FSA only regulate travel insurance sold on its own.
However, the government announced in June that it intends to give the FSA responsibility for regulation of the sale of travel insurance sold with a holiday.
There will be a period of consultation about the regulation’s scope and operation. Implementation will be from January 2009 when consumers buying travel insurance alongside their holiday will have the same core regulatory protection and rights as consumers buying stand-alone travel insurance do now.
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9.
E-learning: Client money for general insurance intermediaries
This course has been designed to help you understand the client money section of the FSA
Handbook for general insurance intermediaries (CASS 5) and enable you to learn flexibly by selecting the topics that apply to you. User fee: £20 per user.
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10.
Wholesale Intermediation Commission Disclosure Review
The FSA are undertaking a review which will analyse whether lack of transparency is leading to customer detriment or impairing market efficiency, and, if it is, whether mandating commission disclosure would lead to benefits that outweigh the costs. The review will draw on data from a wide range of sources, including existing industry and academic work and an extensive interview and survey programme with trade associations, insurers, brokers and clients.
Although, there has been a good deal of comment and speculation, the FSA have still not made their minds up on this issue.
The FSA will publish the results of this work towards the end of this year.
| Ateb view: |
| We continue to encourage firms to voluntarily disclose – this will hopefully lead to an industry led solution. |
| Action required by you: |
| Use the ATEB proforma to disclose commission (available via the ATEB website toolkit) |
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Important Note:
The ATEB Newsletter is intended to provide general guidance on areas of compliance and T&C; however it is not a replacement for the main Rules and Guidance contained within the FSA Handbook.
We welcome all feedback. If you have any feedback or questions relating to any articles then please direct them to your local ATEB consultant or the newsletter editor Steve Bailey email steve@atebconsulting.co.uk
Unless you have consulted specifically (as part of a regular visit) with ATEB on a particular issue then ATEB Consulting accept no liability for any actions taken based on the information contained solely within the newsletter. |
Contact Us:
Ateb Consulting
The Old Post House
29 Nedderton Village
Northumberland
NE22 6AX
T: (01670) 822984
M: (07703) 576951
E: steve@atebconsulting.co.uk
W: www.atebconsulting.co.uk
