FSA gives total premium disclosure deadline
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The Financial Services Authority has given protection providers and distributors until the end of the year to implement its total premium requirement.
By the end of 2010 all firms who sell life, critical illness and income protection insurance under Icobs must apply the FSA’s rules on total premium disclosure.
The FSA’s rules come after the Association of British Insurers led a year-long initiative around the FSA’s total premium obligation, a clause in the European Distance Marketing Directive.
Under the regulator’s requirements, firms have three options for disclosing total premiums. The first is a declaration of the total premium over the period of the plan. Alternatively, firms can provide illustrations of the amounts that will have been paid after certain milestones within the fixed term of the contract, or during an open-ended contract.
Finally all firms must give versions of the above options noting the fact that premiums and benefits are subject to review, and explaining that a recalculated disclosure will be sent to the customer if premiums are changed.
The FSA’s options come after research by Cragg Ross Dawson, for the ABI, revealed that the consumer preference for disclosing total premium fell into three categories - for fixed term contracts, for contracts with no fixed end date and for contracts with no fixed end date.
For fixed term contracts firms must show a single number for the total premium over the term, shown with the benefit amount to put it in context reflecting where appropriate the scope for multiple claims. For contracts with no fixed end date, firms must show a single number for the total premium over a specimen duration, shown with the benefit amount. For market consistency the specimen duration proposed is 10 years for customers under age 65 and 5 years for older ages.
The FSA says for variable premium contracts firms must include a statement to highlight that the amount is given for illustrative purposes only and is subject to change.
Firms can either apply the FSA’s options or follow the approach above.
A joint statement from the ABI and FSA says: “Any firms not yet complying with the FSA’s disclosure standard should implement the point of sale disclosure of total premium as soon as possible, but no later than the end of 2010.”
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Readers' comments (5)
Alan Lakey | 30 Mar 2010 11:19 am
Talk about dumbing down. What next, free cuddly characters with every purchase.
This really is a pointless exercise that could easily be ignored if it wasn't for the potential negative effect that such information can produce.
I wonder how many consumers, having been shown an affordable answer to their protection problems, then decide to cancel the arrangement due to the psychological impact of being shown an accumulated premium figure.
Every day I despair more.
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Anonymous | 30 Mar 2010 1:10 pm
Next thing on the agenda will be whether financial advisors should dish out probes and ask the clients to stick them where approriate (you know what I mean!) and check the readings the following day to see if that client is suitable to receive the advice.
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Laurence Brown | 30 Mar 2010 1:29 pm
Lets face it, the FSA is so busy fighting for it's life and bowing down and kissing the bodily parts of all governments they'll never take time to work for their fees, so it's up to us.
Why not sidestep the whole issue and don't take commission?!
Charge a fee for your advice and to set up the policy.
Everyone wins; the client gets premiums on average 26% lower, we the adviser don't have to worry about claw back or FSA tyranny.
Oh and another thing I've calculated... if you add up the premium difference, multiply that by 12 multiplied by the term, then compare that to the initial commission added to the total of all renewal commission, it NEVER matches the total in the reduction in premium. I wonder where that 'none disclosed' profit goes... Mr Protection Company!
Come on people, time to grow up and change, we all rode the commission train, it's de-railed, now we have to come up with a different 'fair to all' way to transact business.
Oh and to all you doubters, "my clients will never go for it" I have a 98% success rate in fee over commission.
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Simon Mansell | 30 Mar 2010 1:51 pm
Of course the adviser can show a total income figure over the total period in order to show the total impact of the total premium - but what a total waste of every ones time.
The trouble is that the FSA transcends government and parliament. Most MP’s don’t even know what the FSA is and does and when they do find out they are astonished i.e. Michael Fallon MP's interview with Alan Lakey.
The FSA is a government within a government and it is anti democratic because by virtue of statutory authority it operates in isolation even to common sense and certainly to normal commercial considerations as to what is viable and what is not. It seems to me the FSA is a manifestation of everything that is wrong in Great Britain today.
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Chris Wicks | 30 Mar 2010 2:24 pm
This is a total waste of everybody's time and of no conceivable benefit to clients. They are already subject to ridiculously large amounts of paperwork most of which they neither read nor understand. What is needed is a drastic reduction in paperwork with more emphasis on the provision of key information in easy to understand bullet point format, on one or two sheets of paper.
Sure they can have chapter and verse if they want it but it is an utter waste of resources to make it mandatory that all of them be provided with 15-20 pages of densely packed legalistic text everytime they want to buy an investment.
Reminds me of some marvelous text I saw on an FSA consultation document 'internalise their externalities'. I still don't understand what that means but I reckon that this proposed externality could do with being internalised!
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