Abbey protection head Nick Kirwan is calling for the FSA to reconsider its stance on the definition of pure protection products before regulation of the sector starts and causes erosion of customer choice.
Under current regulations, which were finalised last week, products such as term, income protection or critical illness which have contracts running over the age of 70 and which are held for more than 10 years have to be treated as investment products for regulation purposes while products which have a shorter term will come under different rules when regu-lation takes effect in Jan-uary 2005.
The regulator says it will look at the issue and consult again if it considers a change may be justified.
Kirwan says if potential changes are not made before regulation comes in, it will be an “absolute disaster”, meaning that insurers will have to rebuild systems and retrain staff twice. He says the ABI has already informed the FSA of its concerns.
Kirwan says insurers are currently left with three options after regulation starts – classing all policies as investment products, using the two regimes with the added cost and risk of “getting it wrong” or redesigning products to reduce the maximum term that a policy can be taken out.
He says: “No one can give us an explanation as to why we have this rule. I cannot think of a single reason why it would be like this.”
FSA spokeswoman Kate Bristowe says: “We are looking at the issue. If we decide to consult, we would take account of the impact on firms and as part of the consultation process, companies would have an opportunity to voice their concerns.”