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Kim North: Insurance law blurs the lines for restricted advisers

Kim North

Now the RDR has settled in it is time to look forward to other regulatory and legal changes on the horizon.

I may be a little geeky but I spent last night reading about the Consumer Insurance (Disclosure and Representations) Act for a client. Having been an IFA for many years I’m now paid by different types of financial services companies to explain in simple terms what technical changes mean.

I know that one of the best things about being an IFA is that you act on behalf of the client. In the past, any tied agent would sell products and would be working on behalf of the provider. With the new status choices for advisers available from last month, a number of IFAs have chosen the new restricted route.

Network Personal Touch has lost just 10 of its 700 firm-strong member base following its decision to move away from independence. It is understandable for some firms to move to restricted as long as they are not too restricted!

A restricted offering in the protection area makes sense as following detailed due diligence a panel of insurers with a good claims record, sensible underwriting, reasonable premiums and deep pockets will be appropriate for most clients.

The Consumer Insurance (Disclosure and Representations) Actis written to aid the insurance company, the court or the FOS when deciding to reject or settle a claim.

The Act will also remove the assumption the adviser always acts on behalf of the client.

From April this year, IFAs will still be classed as acting on behalf of the client, while restricted advisers are likely to be classed as agents of the insurance company who is providing the product.

If the client submits a claim through the FOS and the policy was sold by an IFA, the IFA takes responsibility.

If it was sold by a restricted adviser, the issuing life assurance company will need to deal with the complaint and settle the redress.

Tom Baigrie thinks that as the restricted channel will be more expensive for insurers, the premiums for clients’ life assurance through restricted advisers will rise.

Many insurers have said that they will not raise premiums – after all they have all just been through the gender repricing exercise which cost millions of pounds and to have different pricing models for whole of market and restricted distribution will I believe be a step too far.

At the launch of the last Swiss Re Protection Gap research report their CEO said: “Protection cover is not top of consumers’ minds when they think about providing for their dependents’ financial needs or their own ill health or disability. One of the major barriers is that consumers think the sales process is too complicated”.

It will deter protection sales even more if the products are dual priced.

The Consumer Insurance (Disclosure and Representations) Act is of little concern to IFAs as their protection illustrations will remain the same and so few FOS complaints are upheld against the sector.

Advisers may be best served asking why the FSCS is asking for so much money again from investment advisers asking for a £76m levy for 2013/14, plus an interim levy of £25m for 2012/13. There have been vitriolic comments so far from those that need to pay the levy as it remains high and I believe remains unfair.

Kim North ( is director of


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. Whether an Insurer chooses to alter the premiums to reflect the independent -v- restricted routes is an interesting aspect to consider and monitor over time.

    It would also appear to be one which would seem to be at the discretion of the individual Insurer. But is it?

    Will it prove to be the case that the FCA will countenance that no accounting provision is to be made for the potential liabilities that an Insurer may face for the activities of those acting on its behalf under the heading restricted?

    One to watch perhaps?

  2. The provisions of the Act relating to agency apply only for the purposes of the Act – in other words whether, when making disclosures and representations, the adviser or other intermediary is acting as agent of the policyholder or as agent of the insurer.

    The Act does not mean that a restricted adviser, when giving advice on the merits of an investment, will be regarded as acting as agent of the insurer when giving that advice, because at that stage they are not making any disclosure or representation to the insurer.

  3. Sorry Kim, but the terms ‘restricted’ and ‘independent’ don’t actually mean anything in the ICOBS world. Indy and Restricted are RDR (i.e. investment) terms. There has never been such a concept as ‘independence’ in insurance. What we have is either fair analysis of the market, a range of insurers, or a single insurer.

    As Casual Observer says above, the new act is more about disclosure of material facts. I am unsure what it has to do with investments.

    Have a look at the following for more clarity:

  4. “Will it prove to be the case that the FCA will countenance that no accounting provision is to be made for the potential liabilities that an Insurer may face for the activities of those acting on its behalf under the heading restricted?”

    No, because insurers’ accounting will be the responsibility of the PRA rather than the FCA…

  5. Can we kill this topic – it is a complete red herring. Insurers and reinsurers already differentiate their pricing by distribution channel and this factor is included in their pricing (level of commission rather than premiums) as is persistency, volume over-rides, socio econimic profile etc etc

    Why dont you get some commentators who know what they are talking about and/or dont have an agenda… (sorry Kim that wasnt really pointed at you)

  6. This subject is groundhog-day-central.

    The insurers have confirmed that this will have no effect on pricing regardless of the advinsing source being restricted or otherwise.

    Why are we harping on and on about it?

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