Insurers and intermediaries now have a year to prepare for the start of general insurance regulation on 14 January 2005. The FSA started accepting applications yesterday.
"Insurers will also need to satisfy themselves that all the links in their supply chain affected by regulation become either authorised or an Appointed Representative. Insurers will not be able to continue doing business with unauthorised intermediaries. Importantly, this includes so-called "secondary intermediaries" - such as motor dealers, retailers or vets - that sell insurance as an adjunct to their main business.
"We are now accepting completed applications and would encourage those businesses that wish to seek direct authorisation to take advantage of the discounts that we are offering for early applications."
For help with the options, rules or how to apply, call the dedicated contact centre on 0845 605 5525. Or visit the FSA website at www.fsa.gov.uk/mgi where there is plenty of useful, unbiased information as well as details about training events and seminars being held around the country.
Conduct of business for general insurance
The new regime will implement Insurance Mediation Directive (IMD) requirements and improve consumer protection. The final rules contain a number of changes aimed at clarifying and increasing the flexibility of proposals set out in CP187. For example:
* The amount of information that intermediaries need to provide about themselves to customers, known as status disclosure, has been significantly reduced where they are only doing the regulated activity of 'introducing', for example, passing on customer details to a provider and not making the sale itself.
* Firms will now be able to renew contracts without the prior consent of the retail customer as long as their contract with the customer specifically allows them to do so.
* Timescales for notifying commercial customers about renewal terms, or that the insurer does not intend to invite renewal, will not be prescribed. The rules require notification to be provided 'in good time' or before the policy expires.
Final prudential rules
The FSA has also today published the prudential requirements for mortgage and general insurance firms, published in September 2003 in PS174, which have been subject to minor technical change. Key points are:
* New guidance on 'by way of business' test
Additional guidance has been provided to help intermediaries work out whether they are doing insurance intermediation 'by way of business'.
* Greater flexibility on professional indemnity insurance (PII) requirements
The PII requirements apply to individual firms. However, some policies are designed to cover more than one party, for example a group policy. The rules have been amended to recognise policies covering more than one firm.
* Clarification of client money rules — mixing funds
The near-final rules in PS174 required intermediaries to put safeguards in place to ensure that client money is adequately protected. Where client money is segregated, client money only may be held in the client account. This means that insurers' money cannot be mixed with customers' premiums. A transitional rule is being introduced to allow intermediaries to treat insurers' money as client money for a period of 12 months. The rule requiring segregation will then come into effect unless the FSA concludes in the mean time that there is a case for re-consulting on the issue.
* Clarification of agency relationships
The client money rules have also been clarified to indicate what might constitute an agency relationship. For example, a binding authority is an agency relationship with the intermediary acting as agent of the insurer. In such circumstances, customers' premiums must, therefore, be regarded as insurer's money. As a result, some smaller firms may find that they will not be subject to client money requirements and as a result, are subject to the lower capital and PII requirements.
Final rules for Appointed Representatives
The Appointed Representative regime is unchanged from the near-final rules. FSA has introduced some additional guidance to clarify the role of the lead principal.
