The announcement by the director general of Fair Trading late last month that the General Insurance ...
The announcement by the director general of Fair Trading late last month that the General Insurance Standards Council's infamous rule 42 does not, in his opinion, infringe the Competition Act, will have far-reaching implications for intermediaries not just for general insurance brokers, but also for IFAs who dabble in general insurance lines.
The rule states that insurance companies that have registered with the Council and it is expected that most will will only be able to deal with intermediaries who themselves have joined up. This means that if you are an IFA who currently includes private medical insurance or other general insurances in your client recommendations, you will only be able to continue to do so if you sign up to the new regulator.
This may seem a contradictory rule given that membership to GISC is not compulsory. What it is effectively saying to intermediaries is join up or be damned.
But there are clear and logical reasons why the GISC sought to uphold this rule. The new regime will only be effective if it is backed by the entire industry and it is given teeth. What would be the point of a regulator that allowed its members to deal with non-regulated parties? After all, it is consumer protection we are talking about here, and therefore regulation of the person who is directly responsible for advising the consumer is essential.
If this means that there is room for only one regulator in the general insurance industry then so be it. One of the key reasons the GISC was created in the first place was to do away with the disparate cocktail of codes, statutes and bylaws which previously ruled the roost. The Institute of Insurance Brokers, which is seeking legal advice over whether the GISC contravenes another part of the Competition Act, is increasingly looking like a bad loser, clutching at straws in a desperate attempt to survive. A single regulator will provide the industry with a level playing field and coherence that those active in the financial services industry can only dream about.
But what does this all mean for the protection IFA who wants to continue to offer a comprehensive range of products including PMI to their clients? According to the GISC, they have nothing to fear. While they will have to sign up to the new body in order to continue dealing with PMI insurers, their PIA membership will be recognised for professional indemnity purposes and they will not be forced to segregate their accounts. And unless they carry out huge amounts of general insurance business frankly wishful thinking in the PMI market then the Council says they will only be subject to the minimum membership fee of £200 a year. IFAs are so used to red tape, that this change is unlikely to increase the regulatory burden. And if given the full backing of the industry, as it rightly deserves, the new regulator will increase consumer confidence which in turn can only be good news for business.
Catherine Tennant
Editor-in-chief
