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Playing the game

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  • 17/06/2002
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In 2004 the regulation of general insurance will move to the Financial Services Authority. So what does the announcement mean for the GISC, its members and those yet to commit to a regulatory regime?

Despite the introduction of statutory regulation, the General Insurance Standards Council (GISC), the voluntary general insurance regulator, is saying loud and clear it will remain closely involved in the process. According to the Treasury, the general insurance industry has just two years to prepare for statutory regulation under the Financial Services Authority (FSA), and the GISC is using its voice as the regulator of some 6,400 member businesses to urge the industry to use this time wisely by acting now.

Changes to the game plan are nothing new for the GISC. Take Rule F42, for example. Since the voluntary body began regulating in July 2000, a key strategy had always been to bring as many insurance practitioners into regulation as possible. This was so customers would be protected when they bought insurance ‘ however it was sold ‘ face-to-face, over the phone, via the internet, or direct from the insurer, through an insurance intermediary, or from a retailer whose main business is selling cars.

To achieve this goal, the GISC proposed Rule F42 under which GISC members were required to deal only with GISC-regulated intermediaries. Consumer organisations and most trade associations and practitioners saw the benefits for customers of this rule, which would also enhance perceptions of the industry. The Office of Fair Trading also agreed the rule would benefit consumers, despite appeals by a small but vocal opposition. But following the Treasury’s announcement, the GISC decided that because statutory regulation would achieve this consumer protection objective, it would not pursue implementation of Rule F42.

But it was by no means game over for the GISC then ‘ or now. The GISC remains a credible regulator, acknowledged by both the Treasury and the FSA, and is supported by key trade associations. As of April 2002, the GISC regulates around 6,400 member businesses, including all major UK insurers as well as other intermediaries.

These businesses recognise the benefits of membership, particularly as consumer awareness of the GISC grows. References to the GISC are increasingly made on radio and TV advertisements, and calls to the GISC suggest consumers are seeking to deal with GISC members.

Making preparations

The GISC also believes these members are in a good position to prepare for the start of statutory regulation, and that industry practitioners yet to embrace its modern regulatory standards should reconsider membership as a means to prepare for FSA regulation.

But what does GISC mean by preparation? Until the FSA publishes the new Rules (scheduled for the second half of 2003), what action can practitioners take with confidence?

While it is true no-one can predict the precise nature of the FSA’s rules for statutory regulation of general insurance, it is a fact that they must address the areas set out in the EU Insurance Mediation Directive and these are the same areas addressed in the GISC’s rules. Compliance with the GISC rules means practitioners are making good progress in their preparation for regulation.

The precise fitness tests by which the FSA will eventually measure compliance might differ from GISC’s rules, but being in good shape in compliance terms, will help. In addition, the FSA has confirmed that, with respect to its authorisation process, it is committed to the principle of giving ‘due credit’ to those firms which are members in good standing of the GISC.

Get in gear

Businesses can also benefit in the short term by taking action now. Investing in GISC membership and compliance demonstrates to your clients a commitment to good practice and gives your business the opportunity to reap the benefits sooner. This is because the discipline of mapping existing business practices against the GISC’s requirements can identify shortcomings which, when addressed, have positive effects on business retention, complaints, and other key business indicators.

Investment in GISC compliance will not be wasted, even if certain aspects of FSA requirements differ, provided the investment is directed at adding value to your business.

It is worth noting that this concept is consistent with the requirements of the GISC rules. These were developed in consultation with the industry and consumer groups to represent a sensible balance between good business practice (not unattainable high ideals) and customer protection. By these virtues their implementation can have positive effects on members’ businesses.

Compliance with GISC competence and training rules demonstrate a commitment to employees, giving them and potential recruits confidence. It promotes a positive working atmosphere, potentially improving staff retention rates and therefore lowering recruitment costs. Well-trained staff are likely to make less administrative errors, offer better customer service and be more effective ‘ a combination which should lead to fewer customer complaints.

Those who doubt the value of early investment in compliance need only look to the experience of the life industry. Businesses which started preparations for regulation early could focus on meeting compliance requirements in a way that also met business objectives, and thus benefited more from their investment.

Businesses that buried their heads in the sand had to invest considerably more resources in order to become compliant and remain in business. If staying in business is part of your game plan, make sure you are fit to compete.

Rachel Maidment is communications officer for the GISC

l Visit www.gisc.co.uk or call 020 7648 7810 for more information.

sales points

GISC members will be given ˜due credit’ by the FSA when it takes over the regulation of general insurance in 2004.

While not compulsory, membership demonstrates a commitment to good practice to clients.

Those businesses that make early preparations for regulation typically need to invest much less than those that delay.

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