Paper pushing could make it commercially unviable for advisers to sell cash plans, says Hazel Gregory
Just how the cash-plan market and the general insurance market will be affected by FSA regulation is difficult to predict. Discussions have recently got under way and there has been no indication as to the extent of the new framework. We must wait until September when the Tiner Project is completed.
In a speech given by Tiner on reforming insurance regulation, he said: 'Smarter insurance regulation does not have to mean more insurance regulation ' it would be far more effective to give customers a small amount of genuinely useful information they will digest, rather than swamp them with a lot of material that goes unread.' This is heartening to hear because from an adviser's view point this is a major concern.
If time-consuming regulatory form filling, currently required by the FSA, is applied to cash-plan sales and some other general insurance (GI) products, it could become totally uncommercial for intermediaries to actively promote these products based on present levels of commission.
An example of current commission remuneration is a standard single membership premium in the region of £10 a month. This business would generate an initial commission of £24 based on 20% commission with renewal being just £6. It is easy to see the how lengthy fact-finds and reasons-why documents which the financial services use, would result in this class of business becoming commercially unviable.
There are other factors that may influence the market. Training and education in the general insurance industry has been lax in comparison to other financial services. This is an area where the regulatory regime will set new objectives and may introduce compulsory exams.
Depending on the extent of the impending regulation, we may see a new breed of regional or national networks emerging or existing networks introducing GI arms. There is rumour of consolidation activity under way among the small to medium-sized GI brokers.
Recently we have seen a number of private medical insurance (PMI) companies launching innovative cash plans with new names entering the arena. Consumers look to the cash-plan market as an affordable alternative to higher priced PMI. This is good news for the industry and the consumer. It would be unfortunate if robust regulation resulted in higher premiums, just as cash plans begin to appeal to a wider market.
