Theregulationdebate

Kirstie Redford: Should the rules regarding customer protection differentiate between large and small companies and do you think the £1m threshold is appropriate?

Bob Cheesewright: The £1m threshold has its fans and its detractors. The detractors say £1m is a magic number but it is a number which may not apply. We need to know how it is classified. A lot of people are saying it is not the right way to go.

Richard Walsh: The question is the extent to which corporates need protection by regulation. If the FSA does want to make a distinction between corporate and individual protection the best place is not with some arbitrary figure like £1m.

Kirstie Redford: Does anyone have any concerns about the cost this could mean to the intermediary? What impact will it have on firms that just reach that figure?

Richard Walsh: We have not done any cost analysis on this. But we think it is really important we do and look at it in terms of what they are trying to achieve. I think the FSA has commissioned some analysis but it might be a bit late in the day.

Ron Wheatcroft: It is a difficult question to answer because we have so little research. We do not know, for example, if they have to reach £1m for every transaction or just answer the question ' what is your turnover? There is a whole raft of questions that fall behind the threshold. I remain sceptical.

Dean Laley: There will be an organisational impact both on intermediaries and insurers. At the moment both products and the way companies are structured have the old-fashioned definition of what is corporate and what is not. For insurers there will be issues around how products are tailored, aimed and pointed.

Bob Cheesewright: What is the difference in expectations?

Dean Laley: The small corporate client requires the same kind of advice, the same level of presentation, and the same amount of attention from an adviser as one of the large corporates. If this were affected by the change, it would be a great shame.

Kirstie Redford: One of the most talked about issues regarding CP160 is the categorisation of products into high risk. What are your thoughts on that?

Richard Walsh: We think this is completely flawed. We accept that long term care (LTC) should be treated separately and argue it should be treated like investment products. But there is no evidence at all that income protection (IP), critical illness (CI) or private medical insurance (PMI) have any consumer detriment issues to them. The argument is frequently made in CP160 that because they are term insurance products, as opposed to annually renewable products, that somehow puts them at greater risk. In fact it is the opposite ' if you have to annually renew things you have to make redisclosures all the time. The exception, paradoxically, is PMI where you continue to be covered even though it is an annual renewable policy. There is also a danger that if you create these separate categories and separate training requirements, the temptation for some people will be to only offer those products which require the minimum amount of training.

Janine Menasakanian: I can understand to some extent why they want to categorise these products into high risk because the products, while they may seem simple, are not. There are an awful lot of variances in each of the product groupings with respect to the type of cover offered, the illnesses covered, the rehab policies of each provider that need to be taken into account. Yes, there is little risk involved to the client if the product has been mis-sold but my argument is why should the client pay for a policy that perhaps is not appropriate?

Kirstie Redford: So you think it is something that could be positive for the market?

Janine Menasakanian: Absolutely.

Julian Ross: I will talk about PMI specifically. It seems we are damned if we do and damned if we don't. We put in the work to give the information to the customers. But apparently having done that it must mean the products are so complex that you have to rate them a higher risk. What makes health insurance products more complicated as much as anything else is the fact that they operate in the context of medicine ' medicine is complicated, you are never going to change that aspect of complexity no matter how many rules you put in place. New treatments come along, new diseases develop in different ways.

Kevin Carr: If you have regulation for one product that is directly compared to another ' such as with IP and MPPI ' what it would lead to is an increase of inferior products. However, I think CI in particular is an extremely complex area. You have a difference between risk and specialisation.

Bob Cheesewright: The danger of it being made higher risk is that some one will say 'I won't buy this product because it is risky'.

Richard Walsh: The complexity of products is an area we have invested a huge amount of time in. We have been dealing with that through the ABI codes and on CI, making the product definitions common across the whole industry, in terms of minimum coverage. This means you do not actually have to be a consultant oncologist to decide which cancer policy for CI you are going to buy because you will get minimum coverage.

Ron Wheatcroft: I think the FSA has addressed the wrong problems. It has come up with a product-driven solution. If we are looking at higher risk and potential consumer detriment, isn't that more to do with the circumstances in which the product is sold? That makes it harder for the regulator because it cannot tick its own boxes. If you are looking at circumstances then you are looking at a different ballgame completely. With LTC, we then say 'let's take the investment approach'. What this could do for LTC is constrain the market by putting restrictions on product development, forcing it into a tight definition to be determined by the regulator.

Kirstie Redford: Graham, did you have any thoughts on the regulation of LTC? Do you agree with what the FSA is proposing?

Graham Fidoe: LTC is such an essential part of long-term planning. There is a huge credibility issue here. A few years ago every press article used to finish by saying, 'don't forget ' it's not regulated', when giving advice on LTC you also have to cover all the options ' we might end up with some of the products being regulated in a different way. It is almost impossible to regulate the product in a consistent way.

Janine Menasakanian: If this forces our hand to give more advice then it could be a good thing. I am not saying that categorising products as high risk is the right thing to do, you could approach it from a different angle. However, it may force people to start looking at things more carefully and realise it is not just a simple protection product or insurance product ' there is a lot more to it than that.

Kirstie Redford: Does anyone have any thoughts on the FSA's approach to disclosure?

Ron Wheatcroft: Without dragging in other consultation papers, what I think is important to achieve is some degree of consistency. There are some strange anomalies. You have to declare shareholdings of 10% or more under the Mediation Directive. In CP166, they have moved to 5% shareholding. For an intermediary who is selling both investment and protection business what should he disclose? There is a need for clarity. CP160 and CP166 need to come together. I do not think you can look at CP160 in isolation because that just means you end up with parallel styles of regulation. We need to avoid that.

Kevin Carr: From the client's perspective you have got to be independent across every industry, across the board.

Frank Fletcher: How much of this is just the result of different people drafting the different documents?

Richard Walsh: The link between CP166 and CP160 is interesting. Certainly CI, IP and LTC already have key facts documents, which are already in the code of practice and apply to the whole of the industry. Why reinvent something new when we are already doing it? If you look at the work that has been done to raise standards, it is surely far more effective than having an across-the-board, tick-box situation that people have to comply with. We are really pressing the FSA about the cost to the industry of doing this and why they are doing it in the first place.

Dean Laley: It is one area of the consultation paper that I do not have any problems with. I know organisationally we and others have used full disclosure for years. It has been best practice. My only concern is that if it suddenly becomes regulated, what was best practice suddenly becomes a pig's breakfast because they drag in a number of completely unnecessary items into the need for disclosure.

Janine Menasakanian: How does it interface with CP166 and will the same full disclosure rules apply to the IFA as well as the multi-tying scenario?

Julian Ross: It seems to me the individual should absolutely know the context in which they are being sold a product.

Ron Wheatcroft: My initial reaction to the key facts is that it feels overly negative. The FSA has been splashed across the front page as an 'independent watchdog'. There is a real risk that it comes across as being negative. We need to encourage customers that regulation is giving positive messages about what services we are giving and how we are giving them.

Kevin Carr: If you regulate access and restrict that access to advice, you cut the number of people taking out protection policies and, in the end, achieve nothing at all.

Ron Wheatcroft: This is a really serious issue. We calculated a protection gap in the UK of £2 trillion. That was based on conservative estimates. The amount of cover in the market needs to at least double. The real risk is that if we have too much regulation, customers will walk away with inadequate benefits. They will go for short-term rather than long- term solutions.

Kirstie Redford: How could training and competence for different product areas be effectively assessed within the new regime?

Tony Tudor: What you have to bear in mind is that as far as the Insurance Mediation Directive is concerned, it is about adequacy for the purpose of the product you are selling. I think that puts the emphasis very much on training rather than some broader qualification. It is very much a question of is the person competent for the job they are doing? I think for a lot of organisations they will actually come up with their own solutions and that will be perfectly adequate to meet the regulatory requirements.

Kirstie Redford: Could in-house training schemes be a good way forward?

Tony Tudor: For a lot of people it would be a very good idea, for some it will be beyond them and they will look for support in the market.

Janine Menasakanian: I think the modular approach could fit in well.

Dean Laley: What concerns me is there is no suggestion anywhere in the consultation paper about what will be considered to be appropriate qualifications or training. I have just managed to save a considerable amount on next year's training budget because I am not going to send my guys to study for any Chartered Institute of Insurers' examinations until and unless I find out that the regulator is happy that they are the appropriate qualifications. Otherwise someone could study for a year for a qualification that is of no use and will have to start all over again. That is something I would like to see some early clarification on.

Kirstie Redford: Do you think there is a risk that firms may be putting off their training until they have clarification?

Dean Laley: The internal training that we do and things that we do will continue because we have ongoing training and competence. It is the qualifications side of it that needs clarification.

Tony Tudor: There was an interesting comment by some MPs when CP160 was presented to them in the Commons. They were surprised it was not a tougher requirement on the training and competence. So there maybe some consumer political lobbying. There is no clarity.

Kevin Carr: For the products we are talking about there has never been a specific exam. The starting point is what is the appropriate level? Then what level of supervision is there? And what impact will that have on many of the providers?

It is the advice versus non-advice, which raises the main questions certainly for us. First, what is advice and what is not advice? As soon as the adviser provides anything that changes the client's decision process, it is advice. If you are purely providing information, it is not advice. Those of us who want to give the advice, face regulation and increased costs. Those who do not, can continue not doing so. This is where the problems will come from because they won't have the cost and burden of regulation.

Alex Broad: Of those of you who have made submissions to the FSA, what was at the top of that submission?

Ron Wheatcroft: We have taken a very robust approach to the categorisation of certain products as high risk, addressing the concerns the FSA had but also raising a number of challenges at the technical level. However, we disagree on LTC.

Julian Ross: We are concerned what will happen on the training and competence side if products are deemed to be high risk.