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The Protection Issue and Regulation Cover Forum, 5 October 2006

The Protection Issue and Regulation Cover Forum, 5 October 2006. Stephen Walton Manager, Retail Firms Division Financial Services Authority. Agenda. Take stock of work so far ICOB effectiveness review the “age” issue. The story so far ….

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The Protection Issue and Regulation Cover Forum, 5 October 2006

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  1. The Protection Issue and RegulationCover Forum, 5 October 2006 Stephen Walton Manager, Retail Firms Division Financial Services Authority

  2. Agenda • Take stock of work so far • ICOB effectiveness review • the “age” issue

  3. The story so far … • Regulation of insurance intermediaries from January 2005 • About 8,000 newly authorised firms – from brokers to car showrooms • Time for the regime to bed down • Thematic work – emphasis on protection products (where most evidence of market failure)

  4. Payment protection insurance Autumn 2005 • Dear CEO letter and • Reports of • thematic work and • mystery shopping Autumn 2006 • Report on follow up round of visits to firms

  5. PPI: Key messages • Whether oral disclosures provide clear, fair and not misleading information about the product, in terms of: • exclusions and policy terms; and • issues relating to single premiums. • Establishing eligibility and suitability.

  6. Critical illness • Review of financial promotions (some evidence of scaremongering) • Review of policy documents • Visits to over 40 firms • Mystery shopping

  7. CIC: Key issues • No particular evidence or rule breaches, but still many claims rejected. • We focused our messages on whether firms treat their customers fairly: • How firms explain to consumers the nature (and limitations) of the cover • Consumer understanding of the need to disclose medical information • Changes to underwriting terms – how do firms communicate the significance and refresh advice?

  8. Learning lessons – ICOB review ICOB Effectiveness review – timetable Q1 07 Report of effectiveness review Q2 07 Consultation on rule changes, if necessary Q4 07 Make rule changes, if necessary

  9. Recap on our approach

  10. Is there a case for product differentiation? • Selected 11 personal lines products • Motor • Household • Pet • Travel • Health cash plans (HCPs) • Standalone personal accident • Private medical insurance (PMI) • Term assurance (inc pensions term assurance) • Critical illness • Income protection (IP) • Payment protection insurance

  11. Desk based initial market failure analysis • Info provided by industry • Market reports • FSA data – complaints, claims ratios, PSD, RMAR • Supervision & enforcement experience inc thematic work • FOS

  12. Indicators of consumer detriment

  13. ICOB or COB? (the “age issue”) • Regime for sales of “protection products” depends on the term of the policy and the age of the policyholder. • Leads to increased costs for some firms and limits the availability of protection products. • Consultation proposed two options: i) Increase age from 70 to 80 ii) Remove age and term conditions

  14. Consultation responses • Overwhelming support for proposal to remove age and term condition. • However, this would mean some whole of life products with investment characteristics would become ICOB regulated. • ABI have proposed a ‘third option’ to mitigate risks from this.

  15. Where next? • Working on feasibility of option three • Continue to liaise closely with HMT • Aiming for January Board with rules taking effect early next year.

  16. Next steps • Publication of PPI report • Output from ICOB effectiveness review • Conclusion of the “age” issue for protection products

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