Increased compliance requirements will force providers to rethink their sales strategies, writes Debbie St. Cyr
Hospital cash plans (HCP) are general insurance contracts and are not currently subject to statutory regulation for the conduct of business, money laundering, training and competence. Providers, however, can choose to be members of the General Insurance Services Council (GISC).
On 12 December 2001, the economic secretary to the Treasury, Ruth Kelly, announced that the Financial Services Authority (FSA) would become responsible for the regulation of mortgages and general insurance contracts.
This decision came about after political agreement was reached in the European Parliament on the Insurance Mediation Directive, which is now passing through Parliament. The Directive will bring with it, among other things, statutory regulation of most general insurance contracts, including HCPs.
In welcoming the Treasury's announcement on the extension of its remit, the FSA said: 'This new regime must be proportionate to the risks faced by consumers.'
This approach will hopefully present the industry with a workable and effective regime, bringing adequate protection for consumers while enabling providers and intermediaries to operate and bring innovative products to consumers.
The Directive requires all general insurance intermediaries to be individually registered with a statutory regulator. Individual registration will bring with it a whole raft of requirements such as training and competence, indemnity insurance, intermediary solvency and client money facilities. The Directive also places a burden to provide both status and product disclosure as well as a modulated form of suitability letters.
The format of the FSA's regime, the outline to which is expected to be published by the end of 2002, will inevitably bring additional cost into the sales models currently used. The FSA's belief in level-playing fields might mean telephone sales are included within the definition of mediation and therefore become subject to statutory regulation. As a large proportion of HCP sales are conducted in this manner, increased compliance costs will inevitably mean HCP providers will yet again need to rethink their sales strategies.
Research conducted by Swiss Re Life & Health for its 2001 insurance report showed consumers do not draw any clear distinction between life and general insurance contracts, with almost half of those interviewed either very likely or fairly likely to consider a single product which combines life and non-life needs.
The new framework, to be regulated by the FSA, will extend to those long-term business lines outside the scope of investment business. A structure drawing together the rules for long-term protection business and non-life products would fit with consumer perceptions and encourage the provision of access to cover.
Until the high level principles are published at the end of 2002, it is not clear how general insurance and life protection might mesh together. HCP providers, therefore, should play an active role in shaping and developing the FSA's thinking in order to help create a cost-effective regime.
