Term assurance: Incoming ICOB rules to classify term assurance as complex
By Johanna Gornitzki
Term assurance is likely to come under the more complex category of insurance products when the new Insurance Conduct of Business (ICOB) regulation comes into effect - despite many providers wanting it to be classed as a low-risk product.
This would come as a great relief to many IFAs who believe separating life cover from income protection (IP) and critical illness (CI) insurance could have detrimental effects.
The Financial Services Authority (FSA) seems to be adamant about sticking to its original proposals to keep all protection products in the higher-risk bracket even though the Association of British Insurers (ABI) has voiced concern over the suggestion, arguing that "term assurance fits more comfortably in the lower-risk category".
According to Fay Goddard, deputy director general at the Association of IFAs, it would be surprising if the FSA changed its stance.
"There are no doubt some who would like to see term assurance classed as low risk, but I would be surprised and disappointed if this happens," she said.
And, while FSA spokesman Robin Gordon-Walker refused to be drawn on whether the proposals will stay the same or not, he added that it is a "fairly settled policy".
"We think what we are doing here is the right approach," he said.
Kevin Carr, head of protection strategy at LifeSearch, said he believed putting term assurance in the simple category could be "dangerous".
"Our view is that life must remain within a suite of products that includes CI and IP. If life cover is detached from other protection products, sales of CI and IP will suffer because, if a company has to be regulated under more complex and, therefore, costly regulation to sell CI and IP, they will not bother and will just sell life cover, which will restrict consumer access to the products they need most. It's more a case of familiarity and the consequences of a mistake, than being simple or complex," Carr said.
The ABI said it was very concerned, however. Nick Kirwan, head of health and protection at the body, said this could have "lots of adverse implications" not only increasing confusion among consumers but also increasing costs.
The consultation ends on 28 September, with the outcome likely to be published in November, and the rule changes set to come into effect in January 2008.
