FSA Regulation - A Summary of Insurance Distribution

TABLE OF CONTENTS
CHAPTER 1 EXECUTIVE SUMMARY 3
Introduction 3
Regulatory context 3
Over 40,000 firms are now regulated 3
Regulation will cost the insurance industry over £160 million per year 3
Impact of regulation 4
Insurers are adapting to new processes 4
The impact of regulation will vary by product 4
Consumers have not been affected by change to their insurance-buying experience 4
There has been modest contraction of primary intermediaries 4
The FSA has identified three ‘hotspot’ sectors 5
Banks and building societies are deciding on a course of action 5
Conclusions 5
Regulation will impact all stakeholders in the insurance market 5
The scope of FSA regulation will alter 5
There will be changes to insurers’ route to market 5
CHAPTER 2 INTRODUCTION 13
What is this report about? 13
Who is the target reader? 13
How to use this report 14
CHAPTER 3 REGULATORY CONTEXT 15
Introduction 15
Summary of regulation 15
The FSA has taken over from GISC… 15
…and is the regulator for all insurance providers 15
Number and type of registrations 15
Cost of regulation 17
Regulation will cost the insurance industry over £160 million per year 17
Brokers will face considerable costs, but these may be less than anticipated 18
The cost of regulation will be passed on to consumers 19
CHAPTER 4 IMPACT OF REGULATION 20
Introduction 20
Impact on insurers 20
New processes have been introduced 20
Insurers are abiding by Insurance: Conduct of Business rules 20
Agency arrangements have been pressured 21
Impact on product distribution 22
The impact of regulation will vary by product 22
Creditor insurance is likely to come under increasing scrutiny 23
There are concerns that creditor insurance will be adversely affected by FSA regulation. 23
Travel insurance is outside the scope of regulation 24
Regulation could boost health insurance sales… 25
…and commercial lines insurance sales may also grow 26
New regulation from Europe concerning block transfer rules may prove unworkable 26
Impact on consumers 27
Consumers have not been affected by change to their insurance-buying experience 27
The Financial Ombudsman Service is tasked with dispute resolution 29
The Financial Services Compensation Scheme is strengthening consumer rights 32
Impact on distributors 33
There has been modest contraction of primary intermediaries 33
The contraction of secondary intermediaries is a bigger cause for concern 34
Interim authorization has given some intermediaries a second chance 34
Insurance networks will continue to develop 35
There has so far been no evidence of unauthorized practice 35
CHAPTER 5 CONCLUSIONS 37
Introduction 37
Regulatory impact 37
Customer service will improve post-FSA 37
Business practices will come under heightened scrutiny 38
FSA regulation will add to insurers’ costs 38
Some secondary intermediaries will pull out of providing insurance 38
Travel insurance and extended warranty should become regulated 40
Datamonitor’s view 40
Regulation has brought about minimal change 40
CHAPTER 6 APPENDIX 42
Definitions 42
Research methodology 42
NERA research 42
Further readings 43
Current titles 43
Future titles 43
Relevant links 43
Datamonitor’s custom research capabilities 43
SPP writing team 45


LIST OF TABLES
Table 1: Number of firms authorized to carry on general insurance business, 14 January 2005 16
Table 2: Estimated compliance costs of FSA proposals 17
Table 3: General insurance complaints to the Financial Ombudsman Service, 2003-4 32


LIST OF FIGURES
Figure 1: Motor claims were most commonly submitted to the FOS in 2003/4 31
Figure 2: Datamonitor’s core consulting capabilities 44