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Law firm warns that gap-filling could breach insurance rules

Life offices with tied salesforces could be breaching insurance company regulations by selling other insurers&#39 products in a depolarised world, warns City law firm Norton Rose.

According to rules in the Interim Prudential Sourcebook, which replaced the Insurance Companies Act, life offices are only allowed to “conduct business relating to their or of an auxiliary nature to their own products”. Norton Rose says this means that companies are prevented from marketing or selling a rival&#39s products.

Insurance group partner Cheryl Ronaldson says if life offices with direct salesforces start marketing the products of other firms in a gap-filling scenario, they may fall foul of the regulations.

She says the FSA appears to have skated over the potential areas of concern in CP121 and could be opening itself up to a challenge.

Ronaldson says the regulations are part of the European insurance intermediaries directive so it would be difficult for the FSA to get around them in its polarisation proposals.

She says this is not a new regulation and insurers are aware of the situation but gap-filling flaunts it.

Ronaldson says: “To the extent that insurance firms can market products from other insurers, there is the question of whether this type of business is auxiliary to its own businesses.”

FSA spokeswoman Louise Buckley says: “It is something we are aware of and has been taken on board when we were drafting CP121.”

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