The Future Regulation of Insurance


Following the well publicised problems at Equitable Life, the Board of the Financial Services Authority commissioned a report by its Director of Internal Audit into the FSA's regulation of Equitable. The Baird Report made various recommendations regarding the regulation of life insurance and the Government requested a further report from the FSA covering the action it has taken, and intends to take, to implement these recommendations.

The FSA recently published its report titled "The future regulation of insurance". The report is made against the background of a period of intense regulatory change, particularly the coming into effect of the Financial Services and Markets Act 2000 and the new FSA Handbook on 1 December 2001 (N2).

This article summarises the main proposals in the report, a number of which could be significant to the insurance industry. John Tiner, the Managing Director of the FSA's Consumer, Investment and Insurance Directorate, will take forward the work to strengthen the regulatory regime for insurance companies and is due to have completed this project by September 2002. The Tiner Project will need to have regard to relevant recommendations emerging from other external reviews such as Lord Penrose's enquiry into Equitable and Ron Sandler's review of the long term retail savings market.

Securing a fair deal for consumers

The FSA is looking to help secure the fair treatment of consumers by improving the regime for disclosing relevant information throughout the life cycle of a product, from its promotion, to its point of sale and through the period after the point of sale.

The FSA has already commenced a wide-ranging review of with-profits products (having produced, for example, issues papers on with-profits disclosure and governance). In addition the FSA has issued guidance to life companies that have sold with-profits policies with guaranteed annuity options which explains how they should assess any exposure to an Equitable-type situation and the action they may need to take to address the position of affected policyholders.

The FSA has also published a consultation paper proposing changes to the current rules on polarisation which state that advisers on life insurance, personal pensions and unit trusts either have to be independent and advise across all products and companies on the market or, alternatively, have to represent just one company and sell only its products. A limited exception was introduced last year in relation to stakeholder pensions. Options under consideration include the creation of a new category of multi-tied firms; please see the box on the next page.

As well as improving the disclosure of key information after the point of sale, the FSA aims to bring about a lowering of barriers that prevent consumers from switching products to secure a better deal.

Ensuring that insurance companies have sound management and adequate financial...

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