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General quotas

Most IFAs are relaxed about the FSA regulation on selling general insurance products but things will not be as simple for general insurance intermediaries, with some facing FSA regulation for the first time.

The FSA&#39s CP160, Insurance Selling and Administration: The FSA&#39s HighLevel Approach to Regulation, is due next month.

Intermediaries must be registered by January 2005 but regulation will start in January 2004. As an incentive to register early, the FSA is offering a £500 discount for online applications.

CP180, which outlines proposed fees for insurance intermediaries, suggests that firms with annual income below £1m will pay £1,200 without the discount.

Firms with income of £1m-£25m will pay £8,700£11,000 and firms with an income of over £25m will pay fees of up to £25,000. However, the FSA says IFAs – as opposed to other presently unregulated intermediaries – need only pay a one-off £250 charge to permit them to advise on general insurance.

Aifa director general Paul Smee says IFAs should have no problem adapting to the new legislation as they are already used to the way that the FSA regulates.

He says: “The fact is that broadly they should already be used to dealing with the regulator. The new regulations are not that much more than what IFAs are already doing at present. It is the general insurance intermediaries that have not been under the FSA who stand to have the hardest time.”

Brighton-based Medical Insurance Services director and Association of Medical Insurance Intermediaries regulations officer Stephen Walker thinks regulation may be a stumbling block for some intermediaries and argues that if they are lost to the marketplace because of unwieldy regulation, this will be to the detriment of the consumer.

He says: “I have general concerns over the cost of regulation and its impact on the consumer. This could be counter-productive for clients because most of the cost will be passed on to consumers. High premiums are already a problem and I would hate to think the high cost of regulation would compound it. The whole point of regulation is to protect consumers.”

Walker believes regulation could also force out a lot of intermediaries which specialise in the PMI industry.

He says: “By having costly, possibly over-zealous, regulation that causes a lot of paperwork, many intermediaries may simply stop working in the marketplace.”

But Walker is quick to point out that the AMII is not anti-regulation. It is quite the opposite. He says it believes that regulation will provide a good framework for the industry and enable it to promote consumer confidence.

Walker accepts that there is a need to ensure consumer protection. He is adamant, however, that the AMII should lobby the FSA to provide regulation that is not too costly or time-consuming. He says: “Good regulation provides a framework for a more efficient business. It makes you sit down and think about your operations and processes. Bad regulation, however, can cripple a business.”

Some intermediaries feel that if the object of regulation is to provide safeguards for the consumer, then the FSA is aiming in the wrong direction. One industry figure says he finds it unfortunate that the FSA is more concerned with registering individual businesses which sell and advise on insurance. He thinks if the prime directive of the FSA is to protect consumers, then it should also focus on company schemes where PMI and protection are offered as an employee benefit.

He says: “Intentionally or not, companies will naturally buy schemes that are better for them. If a company gets a scheme from an adviser, the employee, who is the ultimate client, has no say in what they are getting. Individuals get lumped into schemes that may not necessarily be what they would buy themselves if they were given the opportunity.”

But many IFAs feel the FSA&#39s focus is warranted. Millfield Partnership head of long-term care Jeremy Davies says he cannot wait for legislation and feels there are too many people enjoying the freedom of an unregulated marketplace.

He says: “Too many general intermediaries believe insurance selling is money for old rope. If there is going to be another misselling scandal, this is where it will happen.”

Davies would like to see FSA regulation go further. “The regulator&#39s minimal standards are still frightfully close to letting people fleece their clients,” he says.

Davies believes Millfield will not need to make any changes because it already has high standards, add-ing that for their RIs to hold the Millfield “licence” to deal in healthcare products, they must reach G80 in their first 12 months of service, pass internal exams and sit for appraisals.

He says: “Higher standards need to become the requirement. The ABI standard is woefully low and even the G80 exam is too easy and well below where the standard should be. But even with the bar so low, this is still a move in the right direction.”

However, Scottish Equitable employee benefits manager Sue Sneddon warns that IFAs may need to take a closer look at what CP160 covers.

She says: “I am not sure people realise that CP160 will affect a number of different areas of the business, including group income and critical illness. There is a lot of things lumped in there and they do not all sit together nicely.”

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