News and Press Articles

General Insurance : New Regulations

The remit of the FSA was expanded 2 years ago to cover general insurance and the new regime comes into being on 14th January 2005. Determined by a EU Directive, it aims to create a single market in insurance across Europe. The FSA will be addressing a range of issues including the sale of unsuitable cover, consumers’ failure to buy products they need, as well as setting a range of minimum standards to the sales and administration process.

The regulations apply to a wide range of businesses, probably in excess of 30,000, and will not just impact on insurance companies or brokers. The new regulations affect those businesses that offer insurance to complement the sale of products, services or credit facilities, and who are remunerated. The list of businesses affected is lengthy and includes -

• Doctors, Dentists and Vets
• House removals
• Shops
• Travel agents
• Motor dealers
• Car hire
• Associations
• Property rentals
• Lenders who provide credit with payment protection

Of the 30,000 businesses that will be affected by this new legislation, only a small number of firms in the secondary market are thought to have registered – probably about 1500. It will be a criminal offence to carry out the sale of regulated products after 14th January 2005.

Whilst the process of regulation is relatively straight forward, historically there has always been fallout after introduction – caused by the cost of implementation and the shifts in the market that the changes bring. When the regulation of sales was introduced in the Life Market, we saw casualties created by claims for miss selling and the high cost and difficulty in getting indemnity cover. A similar experience can be expected in the General Market. Business proprietors will need to assess the cost of maintaining a presence in the market, against the value of the income stream that they receive.

There is useful advice at www.fsa.gov.uk/mgi

Employers’ Liability Insurance

We highlighted this matter as an area of concern in Update of October 2002 with some solutions for consideration in June 2003. We learn that this compulsory insurance, which pays out for accidents in the workplace, is expected to rise by about 15% for the remainder of 2004, after rises of 35% in 2003 and 50% in 2002. We have handled a number of insolvencies because of these rises. Premiums in public liability insurance can expect a similar increase this year. Claims continue to increase in an ever increasingly litigious market place and where some concerns are starting to be expressed at the levels of tenuous claims.

Clearly the problem is unlikely to go away and we repeat the advice we gave last year-

• Check that the existing insurer will respond to a risk management plan
• Get a breakdown of the insurance costs which identify the risk
• Prepare a 3 year claims history, identify costs and claims
• Focus the plan on the high cost areas and the high risk items
• Demonstrate that the business complies with safety standards and obtain appropriate certification
• Demonstrate that all work is properly supervised and put in place a detailed programme
• Make arrangements for all equipment to be independently checked for safety

  Put in place a monitoring action plan

Financial advisors, who assist clients with this activity, will build loyalty and differentiate themselves from their competitors, as well as adding value to the relationship. Hopefully, it will avoid the problems created by insolvency!

20.7.04

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