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A law unto themselves

The Law Commission has outlined a series of principles for advisers to follow when dealing with insurance firms in a bid to clarify when an intermediary is acting on behalf of the insurer or consumer.

But industry commentators are claiming that the principles could be misinterpreted, suggesting greater clarity is needed.

In its Reforming Insurance Contract Law Policy Statement – the status of intermediaries, the Commission is proposing a statutory code to be included within the Bill it is currently drafting on pre-contractual information in consumer insurance.

Though the proposals are up for question, the paper says that the intermediary is acting as the insurer’s agent when the insurer exerts substantial control over the way that the intermediary conducts its business.

However, RGA UK business development manager Mick James says this could throw up potential problems for insurer-owned networks and intermediary firms.

He says: “Possibly this is the most interesting example, where insurers who own stakes in intermediary companies could be deemed to exert substantial control.

“If this is the case then this could lead to disinvestment and a weakening of the sector. Similarly, an insurer who is an owner of a network may be disadvantaged by this when compared to an insurer who is a panel member, again leading to market distortions.”

Bupa Individual Protection head of product development Steve Casey says the consultation paper throws up as many questions as it does answers.

He says: “I understand the RGA view and agree. It is fundamental that the consumer has a clear understanding of when an intermediary is acting on either their behalf or that of the insurer.

“This goes some way but leaves other questions unanswered.”

Law Commission team manager for commercial and common law Tamara Goriely says this clause is not meant to be interpreted this way.

She says: “The insurer exerts substantial control over the way that the intermediary sells the product and transmits information from the consumer to the insurer rather than about the way the institution is structured.”

The paper also states that an IFA inputting client details into the insurer’s system is acting for the insurer therefore the insurer would not be able to refuse a claim because errors occurred in the transcription process.

But James says: “Insurers are not likely to be comfortable with taking on liabilities for either intermediary mistakes or negligence. The implication would be that life offices would no longer give commission enhancements for online submissions, and in turn this could also lead to more paper applications being submitted.

“Paper submissions are significantly more costly for life offices which would erode profits and add upward pressure on price.”

Casey says: “I do not think that it is the Law Commission’s intention for the insurer to undertake the policing of the intermediary. That should be down to the professionalism of the intermediary plus their own regulatory regime.”

Goriely says the Commission is now “desperately” writing the final report and will try to publish it as soon as possible.

She says: “It will probably not be available until the end of the year.”

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There are 5 comments at the moment, we would love to hear your opinion too.

  1. The law of unintended consequences.
    Tamara Goriely may think this clause is not meant to be interpreted this way but when the regulators get hold of it they will interpret it any way they please, so will the FOS. Take a look at the FSMA 2000 which was interpreted in particularly consumer biased way by the regulators and then parts like SI 2326 were conveniently ignored by Walter Merricks and his team at the Financial Ombudsman Service. If unintended consequences, and I hope they were!, are to be avoided then the law makers should look outside their cosy little box.

  2. A law unto themselves
    Aside from the fact that the FSA is patently a law unto itself, surely all this sort of guff could be cleared up with a return to polarisation and Customer Agreed Remuneration, whether the latter is by way of commission or fees (deductible from the first 24 or 36 or 48 months premiums). Our lives are frittered away with wearisome and unnecessary detail ~ simplify, simplify!

  3. John G. Angeletta 4th August 2009 at 7:27 pm

    A Law Unto Themselves
    I have served within financial services since 1978, initally learning my craft with a major insurance company. When I joined my first insurers induction course, it was drummed into we fledgelings that we were the agent of the insurance company and not the agent of the client. All ‘complaints’ to be dealt with by Special Services. Later, as an IFA, I became the agent of the client not the insurance company. All ‘complaints’ to be dealt with by me. Has anything changed? Just like any other industry, if as an IFA, another company owns more than 20% of my firm, my ltrading relationships could be challenged. Why after more than three decades is this question raised again? And, how much will it cost the IFA to answer it?

  4. What a Carry On.
    More lunacy by overpaid idiots who know nothing about anything, but attempt to justify their cosy ‘jobs’. Has it not yet dawned on these buffoons that after twenty years of gobbledegook in financial services not to mention the obscene cost, they have overlooked the blindingly obvious i.e ”keep it simple’. FSA et al will have a field day with this little gem. Come on call me Dave your time is nigh.

  5. Reforming Insurance Contract Law Policy Statement – the status of intermediaries
    Surely this is basic stuff and exactly the type of area the FSA should dictate in .. if it’s the intent of the law commission just to focus on the law of agency in terms of the consumers understanding of the legal position of the adviser in front of them then perhaps NOW the FSA will BRING BACK THE “BUYERS GUIDE” which was CLEAR to consumers WHO the person advising them was acting for – the customer/consumer/client or their provider/bank employer ? Ironically the FSA and FOS make their own laws through their rules and interpretations leading to unappealable FOS judgements… such as (illegally ?) retrospectively ignoring the statute law available to ALL on the right to choose to use the defence of the 15 year longstop on “stale” complaints. What I want to know is, how many Regulators creating rules do we need here and in the EU ? There seems to be sooo many people/Org’s keen to stick an oar into financial services…regardless of the adviser sector having nothing to do with the FSA regulated banking sector that we are told has caused the current economic worldwide financial meltdown, loss of firms and jobs etc damaging the financial position of families. What is a shame is that UNTIL Government and others meddled through constant in flight changes and taxes the UK had the best pension provisions of the rest of the EU countries COMBINED and the UK ABI providers paid out more from non-compulsory pensions daily than did the State.. when is anyone going to learn to LEAVE independent financial advisers to do what they do best… create wealth and protect income and assets for families financially in a way that is still just a wet dream for the State and impossible for Consumers Associations, commissions, Regulators and the EU edicts etc to match ?!

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