It has published a consultation paper proposing to reform the rules firms need to follow in carrying out general insurance business with their customers. A differentiated approach to insurance conduct of business (ICOB) regulation is at the heart of the proposals, which marks a significant step forward in the FSA's move to more principles-based regulation.
For general insurance business, such as household, motor or pet policies, this means moving to principles and high-level rules, except where detailed provisions are required by European Union Directives or in a small number of cases where they are the only practicable way to protect consumers. While this will mean more flexibility for firms, the FSA will require the same standards of conduct and essential consumer safeguards to remain.
For protection products (Payment Protection Insurance (PPI), critical illness cover, income protection and term assurance), the FSA is proposing a small number of additional rules carefully targeted to improve selling practices in areas where consumers are losing out. Some of these new measures will apply to all protection products, for example, a new standard to ensure balanced oral disclosure to help consumers make informed purchasing decisions. One of these - a requirement for firms to provide information on price orally to the customer where a discussion takes place - will have particular impact on PPI markets. And some measures will apply only to PPI, such as extending the cancellation period from 14 days to 30 days.
Following the consultation, the new general insurance regime is likely to come into effect in January 2008 with firms being allowed a transitional period for implementation.
Dan Waters, FSA director retail policy, said: "Following our recent radical overhaul of the investment conduct of business rules, today's announcement is another big step towards more principles-based regulation. All the evidence suggests that consumer detriment varies a lot according to the type of insurance product involved. And it is right we should now move to a differentiated and principles-based regime for general insurance where the focus is on outcomes for consumers rather than processes within firms."
