The Government's decision to regulate general insurance and mortgage advice has certainly sent the y...
The Government's decision to regulate general insurance and mortgage advice has certainly sent the year out on a bang.
While few IFAs will relish the prospect of further regulation, the decision does make sense, given the alternative of the General Insurance Standards Council (GISC).
Many in the insurance market were struggling with the concept of the GISC ' its remit was too wide, affecting not just IFAs with a finger in the general insurance market, but everyone from vets wishing to sell pet insurance to travel agents selling cover alongside holidays. Life has been equally complicated in the mortgage camp with lenders struggling to work out how they can monitor broker compliance.
To bring both areas under the control of the Financial Services Authority (FSA) makes sense for IFAs, given that their investment and pensions business is already regulated by the FSA, dual regulation will hopefully be avoided ' a factor that was a major stumbling block for the GISC.
Any action that reduces the number of regulators IFAs have to deal with has to be a step in the right direction. Being answerable to too many regulators can only serve to make life unnecessarily complicated and with different regimes applying to different product areas, it becomes much easier to unintentionally fall short of the respective compliance requirements.
But what might not be such good news is the possible regulation of protection products such as term assurance, critical illness and income protection.
So far, the FSA has only said it will not rule out these products and its decision will depend on their risk of consumer detriment.
The Government's decision to take on general insurance advice has more than likely been prompted by new European legislation announced in November. The new Insurance Intermediaries Directive demands member states regulate those involved in the sale of insurance, and as a result, there is a feeling that like general insurance, the regulation of protection is inevitable.
While this will no doubt improve consumer confidence, it has to be argued whether regulation is entirely necessary and whether the positives would outweigh the negatives.
For starters, self-regulation in the form of the ABI Statements of Best Practice appears to be doing a sound job. Key features documents and standardised policy wordings, for example, have made it easier for consumers to compare and understand their cover. A handful of claim disputes have grabbed the media's attention in a big way, but by and large levels of consumer detriment have been low ' hence the reason protection is currently not regulated.
Likewise life offices and IFAs that are already regulated for other areas of their business treat protection as if it is regulated.
Adding a further layer of statutory regulation would only increase costs for insurers and force them to increase premiums. Surely at a time when State support is dwindling the public should be encouraged, not discouraged, to buy protection?
If protection is regulated ' and the industry appears to think it will be ' the Government will have to listen very carefully to insurers and IFAs to make sure it achieves its objectives without stifling the market. As with any consultation the devil lies in the detail.
