General Insurance Brokers

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1. Use of 'consequential loss' terminology
2. Client money accounts – is the money safe?
3. Commission disclosure
4. Conflicts of interest policy & management behaviour
5. Contract certainty - reminder
6. Treating customers fairly – update
7. The Angel GABRIEL is here to save you all, but will he help complete it for you?
8. How do you display your employers’ liability certificate?
9. FSA fines five motor dealers for PPI failings

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?
Please use the following table to decide which article applies to you, if any:

	1	2	3	4	5	6	7	8	9
Directors/Partners
Compliance / A&O Function
Advisers & Trainees
T&C Supervisor
Back Office

 

1. Use of ‘consequential loss’ terminology

The FSA has published a statement on the use of the phrase 'consequential loss' in general insurance contracts.

Terms that use the phrase 'consequential loss' are commonly used in standard form general insurance contracts. These terms are used to exclude insurers from paying for indirect losses resulting from the incident that led to the policyholder's claim, for example replacing locks if keys are lost or the placing of parking restrictions outside a shop.

The statement sets out the FSA's concern that these terms are not written in plain or clear language, and that the average consumer might not understand what their policy covers. The FSA said firms should reconsider the use of this phrase, and instead express what they mean by 'consequential loss' in plain and intelligible language. The statement provides examples of terms that are less likely to be deemed unfair.

The FSA said it expected all firms to comply with the Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations). This includes using contract terms that enable target consumers to understand what is both included and excluded under a policy.

There are risks to firms of having terms in their consumer contracts which do not comply with the Regulations. For example if a court deemed that a term was not written in plain and intelligible language, the term would be construed, by the court, in favour of the consumer. This might result in the firm being liable to make payments for loss it had sought to exclude.

Firms should regularly assess whether the terms and conditions in their standard consumer contracts meet the standards of fairness set out in the regulations and the principle of Treating Customers Fairly, and consider what steps they need to take to comply with them.

Please see the FSA statement in full here.

Ateb view:

There is a wider issue here and it is something that ATEB has been advocating for some time - the need to explain technical and contractual jargon clearly in letters and reports, particularly in relation to warranties, exclusions, conditions, subjectivities and the like.

Action required by you:

We would suggest you ask a layman to read your key documentation (e.g. renewal reports and demands and needs statements) and ask them how much of it they did not understand!

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2. Client money accounts – is the money safe?

The vast majority of you will not hold client money, so will not be affected.

In light of the current turmoil in the banking markets, have those of you who do operate client money accounts considered if the money is safe?

We know from discussions with trade bodies from the general insurance market (where the holding of client money is common) that there is concern that such accounts have limited protection under the Financial Services Compensation Scheme.

Ateb view:

It would be too easy to dismiss this issue as ‘something that will never happen’. Personally I would rather be safe than sorry and take every precaution necessary.

Action required by you:

You should consider this matter carefully and understand what protection you receive under the FSCS. Does your disaster recovery plan cover this eventuality?

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3. Commission disclosure

The FSA remain concerned about the transparency of client information. Even though mandatory commission disclosure is on hold, the FSA is to press ahead with further work to assess the quality of information disclosure in the commercial market and to assess how firms handle key conflicts of interest.

While commission disclosure to commercial customers is only necessary should this be requested, all firms must have a process in place to disclose all remuneration (commission, profit share, over riders, earnings from premium finance, etc). This should include the basis of any calculations, for example profit share, where the specific amount is unknown.

Do you have a process/procedure?

Conflicts
How do you manage potential conflicts in this respect? Are staff aware of profit shares and over riders? Does your bonus structure cause potential issue? Can placement of business be influenced by such considerations?

Do you have a documented Conflicts of Interest policy?

Transparency
Do your commercial customers know that that they have the right to request commission disclosure? Is this clearly documented in your TOBA? Do clients receive TOBAs at renewal?

BIBA have recently suggested that TOBAs should be changed to specifically state that the firm will remind customers of their right to be advised of the level of commission due.

Ateb view:

In our view, it is better that the industry be proactive in managing this issue rather than have a solution imposed upon them.

Action required by you:

Please consider these comments carefully.

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4. Conflicts of interest policy & management behaviour

Following on from the previous article, it would be fair to say that the majority of firms we deal with have a Conflicts of Interest policy in place.

However, when was your policy last reviewed and updated?

There is a tendency to think of the Conflicts document as ‘something we need to have’ and then to forget about it.

In November 2005 the FSA wrote directly to firms requesting specific assurances from CEOs that management action was being taken in this area and it remains a focus of the FSA’s supervisory visits and monitoring.

You should understand that this issue is not simply about writing something down on paper, it is about management behaviour and the FSA is adamant that the issue sits squarely with senior management to instil policies and practices within firms to manage conflicts, which part of a wider strategy to treat customers fairly. Remember, by December of this year, you must be able to demonstrate that TCF is part of the firm’s culture – a good conflicts policy is part and parcel of this requirement.

Ateb view:

Can you demonstrate that TCF, including a well managed conflicts policy, is part of your culture by Christmas?

Action required by you:

If you have not done so recently, we would recommend that you review and update your Conflict of Interest policy.

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5. Contract certainty - reminder

There has not been a great deal in the press recently about Contract Certainty. However, this matter has not ‘gone away’ and our recent findings suggest that firms have allowed momentum to lag.

When the FSA visit you, they will expect you to be recording contract certainty information accurately, be able to report statistics and be able to demonstrate that action has been taken where there are deficiencies.

Ateb view:

We’ve seen it before – things go quiet, so there is a tendency to think that the issue has gone away. Far from it!

Action required by you:

Quite simple, you must ensure that Contract Certainty is recorded accurately.

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6. Treating customers fairly – update

The FSA embarked on a three-year regional programme in January 2008 to assess how managers in small firms approach Treating Customers Fairly (TCF) and how they embed TCF into their businesses.

The assessment is based on the small firm’s management behaviours framework. The FSA believe that the management of small firms can only ensure good intentions result in good outcomes for consumers, if they establish and maintain the right behaviours.

The assessment looks at:

• the relationship the firm's management has with its staff
• how it communicates TCF to its entire staff (not just advisers)
• what controls, including management information (MI), it has in place to demonstrate consistently fair treatment of customers.

In their communications with small firms, they are continuing to emphasise the importance of embracing TCF. They will, however, continue to take a tough stance with those firms who choose not to raise their standards, including, where appropriate, the use of enforcement action.

They are continuing to make use of case studies/examples of good and bad practice to illustrate the various ways in which you can meet their TCF obligations. ATEB will endeavour to keep you up to date with the latest FSA views.

Next Step for Firms
The FSA expects all firms to undertake a significant amount of work to ensure they meet the December 2008 deadline. They believe you will have to:

• Be able to demonstrate that you are consistently treating customers fairly (i.e. your MI or other measures should show good results). The FSA will expect to see evidence to demonstrate that you are meeting those TCF Outcomes which are relevant to your business. The evidence expected will vary with the size and complexity of your firm.
  
  
• Be able to demonstrate that senior management has instilled a culture within the firm, whereby they understand what the fair treatment of customers means, where they expect their staff to achieve this at all times and where errors are found, they are put right promptly and learned from.
  
  
• Be appropriately and accurately measuring performance against all customer fairness issues materially relevant to their business, and be acting on the results.
  
  
• Be demonstrating through those measures that you are delivering fair outcomes.
  
  
• Have no serious failings – whether seen through MI or known to the FSA directly, including in areas of particular regulatory interest previously publicised by the FSA.

You will be expected (following the interim deadline of March 2008) to already have appropriate measures in place to test whether you are treating your customers fairly (i.e. to be able to measure outcomes through MI). This reflects Principle 3 of the Principles for Businesses that ‘a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems’, as well as the specific SYSC requirement that ‘a firm must take reasonable care to establish and maintain such systems and controls as are appropriate to your business’.

The FSA are strongly encouraging firms to consider the examples of good and bad practice in the context of your own business model. These can be accessed via the FSA website on

GI Firms
http://www.fsa.gov.uk/pages/Doing/small_firms/general/tcf/report/case1/index.shtml

Financial Advisers
http://www.fsa.gov.uk/pages/Doing/small_firms/general/tcf/report/case2/index.shtml

Mortgage Broker
http://www.fsa.gov.uk/pages/Doing/small_firms/general/tcf/report/case3/index.shtml

The FSA has designed a TCF MI Matrix which sets out examples of MI which firms should be collecting and using to measure their performance against the relevant TCF outcomes. Such information should be drawn together regularly, reviewed by managers/principals and acted upon where it indicates potential risks to the TCF outcomes being achieved.

The matrix includes some examples taken from firms achieving good outcomes with the help of compliance consultants. An FSA supervisor will expect the firm to be able to explain how your MI relates to the TCF outcomes.

The FSA has also noted that some firms have found customer feedback questionnaires to be helpful. They also observed that these only provide useful information on whether TCF outcomes are being achieved where they go beyond requesting feedback on customer satisfaction by gathering information on actual customer understanding of products, services and risks.

You may find it useful to check out the MI Matrix here.

Ateb view:

There is no getting away from this one, be you a small firm or a large one. It is absolutely vital that you are adequately prepared.

Action required by you:

You must ensure that you understand the above, have implemented the requirements detailed and are able to discuss and demonstrate confidently how TCF applies to, and has been incorporated into, your firm. If you remain in any doubt about the requirements, please discuss with ATEB.

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7. The Angel GABRIEL is here to save you all, but will he help complete it for you?

GABRIEL
Gathering Better Regulatory Information Electronically

GABRIEL is the FSA’s new web based electronic reporting system, designed to make it easier for firms to submit regulatory data. GABRIEL will be replacing the reporting part of the Firms Online system from 1 October 2008 and will become the FSA’s central system for the collection, validation and storage of regulatory data. This system will provide the basis for risk based supervision.
With the move to GABRIEL the FSA is making 2 important changes to RMAR and MLAR. The FSA has at last realised and identified that some data did not actually contribute to RMAR’s effectiveness and have, therefore, reduced some of the RMAR data requirements by 30%. Some of these changes include removing redundant questions, making certain questions mandatory, altering the layout and wording in some sections and tailoring the schedule so that only questions relating to your firm’s activities need be completed.

When will the changes to RMAR take place?
The changes are being implemented from 30th September 2008 and applies for all RMARs with reporting periods ending on or after the 30th September 2008.

Here are some of GABRIEL's key features:

• Firms will be able to view online all their reporting requirements on a rolling 12 months basis
• Your PU (Principle User) can be easily identified on line
• Data can be submitted independently if required
• Online returns are tailored, based on the firms' regulated activities and accounting reference date
• After GABRIEL goes live, firms will be able to access all GABRIEL submissions online
• GABRIEL will provide online system and policy help texts
• Firms can download and print returns.

There are 4 ways to submit regulatory data - Online Forms, Offline Forms, Web Upload and Direct Communication. However, the FSA sees the Online Form as the favoured method of submission.

How do we sign up for GABRIEL?
If you are already registered with Firms Online, your PU (Principle User) will become the PU for GABRIEL. However, this isn’t an automatic cross-over. You are required to activate your new account following an activation email from the FSA. New usernames and activation passwords will be given via email.

GABRIEL Online Training
Something the FSA is giving away for FREE!! An online e-learning package lasting approximately 45 minutes (if you listen to everything the guy has to say) which will give you a preview of the new system and how it works.
It is designed for all firms who will report using GABRIEL and will cover topics such as:

• How to register for GABRIEL
• Set up and manage users
• Prepare validate and submit returns online
  View the system and policy help text for support
• Request resubmission of data
  

Ateb view:

They could have thought of a better name!! However, at last the FSA have come up with a system which appears to be user friendly. This should in effect make the submission of your regulatory returns a lot quicker and simpler.

Action required by you:

Spend some time on the e-learning training course to give you an insight in to the new system. You can access this here. Ensure you have activated the new system and are familiar with logging on. Start your return early as there have been significant teething problems!

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8. How do you display your employers’ liability certificate?

With effect from 1 October 2008, employers will be allowed to display their employers’ liability certificate in an electronic format, so long as it remains readily accessible to all employees.

The changes come under the Employers’ Liability (Compulsory Insurance) (Amendment)
Regulations 2008 (the "2008 Regulations"), which amend certain provisions of the Employers’ Liability (Compulsory Insurance) Regulations 1998.

The 2008 Regulations also removes the requirement for employers to retain their employers’ liability certificates for a 40-year period.

However, this could cause problems for what is known as ‘long-tail’ industrial disease claims, where illnesses may not become apparent or be diagnosed for many years, for example asbestosis and mesothelioma. The 40-year requirement was introduced to make it easier for workers to raise claims for industrial diseases.

Ateb view:

None for information only.

Action required by you:

Firms should make an assessment based on their individual circumstances. However, it can already prove problematic to trace policies which pre-date the introduction of compulsory employers’ liability insurance cover or where companies have ceased to trade. As a general rule, therefore, we would suggest that it is in the employers’ best interests to retain a copy of the Certificate of Employers Liability Insurance, for if no insurance records can be found, the employer will be responsible for payment of the claim.

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9. FSA fines five motor dealers for PPI failings

If you advise on premium protection policies, this article will be of interest.

The Financial Services Authority (FSA) has recently imposed fines totalling more than £175,000 on five motor retailers for serious breaches relating to the sale of Payment Protection Insurance (PPI), which exposed a total of 2,175 customers to the risk of being sold unsuitable PPI policies.

In an update on the thematic review of sale of PPI, the FSA has set out that, due to the poor findings from its recent work, it is escalating its regulatory intervention.

The FSA will consider the action it will take to deal with ongoing non-compliant sales practices and consider actions to identify and remedy non-compliant past sales, using a range of regulatory powers at its disposal.

Jon Pain, Managing Director of the FSA's Retail Markets, said:

"Tackling poor PPI sales practices remains a high priority for the FSA. We will intervene to ensure consumers are protected and are considering what regulatory powers are the most appropriate to deliver fair outcomes. Firms may wish to consider stopping selling single premium PPI sold alongside unsecured personal loans, given the continuing problems in the sales of this product."

The FSA's work on PPI included a mystery shopping programme that captured customer experiences of face-to-face branch sales of single premium PPI when sold alongside an unsecured personal loan. The results showed:

• very few customers were told that the cost of the payment protection would be added to the loan as a single premium and that interest would be charged on this amount;
  
  
• only half of customers said that they were told about the key limitations and exclusions of the policy - this is fundamental to establishing a customer's need and eligibility; and
  
  
• many customers were not told of both the monthly cost and total cost of their PPI - at the worst performing firms very few customers were given adequate information on the cost of their policy.

The FSA will publish a further update on the third phase of its thematic work in early 2009. The FSA is considering the Financial Ombudsman Service's (FOS) concerns, raised in its wider implications letter, about PPI complaints and will be working with the FOS on the appropriate response to this serious matter, in the context of FSA's broader strategy.

Ateb view:

Don’t be caught out, review you procedures now!

Action required by you:

The FSA have started to produce more practical assistance. Most firms will find that they are already following the guidance or similar, but it doesn’t harm to have this reinforced. More information can be found here.

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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
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Northumberland
NE22 6AX

T: (01670) 822984
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