When the Competition Commission decreed the General Insurance Standards Council (GISC) Rule F42 as anti-competitive, there were a number of intermediaries who proclaimed it as a decision for common sense.
There were also a number of brokers who thought that as a result of the ruling, the spectre of greater regulation in the general insurance market would disappear forever.
But their wishes were not granted and on 12 November, the GISC announced its intention to appeal to the Office of Fair Trading (OFT) for an exemption to Rule F42 under the Competition Act. This rule stated member insurers could only conduct business with brokers that had signed up with the GISC.
Until the OFT has considered the GISC appeal, membership of the GISC remains entirely voluntary and Rule F42 is not in force. As a result, GISC members remain free to deal with non-GISC intermediaries.
The outcome of the OFT appeal remains uncertain, but what does appear certain is that the GISC has built up too much of a head of steam for increased regulation of the general insurance market to go away.
The GISC has more than 6,000 members, including the large insurers who account for more than 90 % of all business sold in the UK. The GISC has also been recognised by a broad range of consumer organisations including the Consumers Association, the Citizens Advice Bureau, the National Consumer Council and the Financial Ombudsman Service.
The GISC is a supertanker which is now well and truly underway ‘ it may have been knocked off course by the Competition Commission’s ruling, but it has certainly not been fatally damaged. In fact, it appears the GISC has every intention of simply repairing the damage and then continuing on its chosen course.
So should intermediaries be concerned by this latest development, as some clearly were when the GISC was first formed, or should they now embrace the GISC with open arms and accept that greater regulation will be for the good of the industry?
Most of the principles which make up the GISC rulebook were designed to ensure greater clarity for consumers. The concern of some, however, is that with any new regulation, the original intentions can become lost as they sink under unnecessary bureaucracy and fuddled thinking. You only have to look to the mortgage market and some of the proposals for regulating mortgage brokers to see how noble intentions can quickly turn into impractical proposals.
So what do the GISC rules say? The rules aim to ensure the sales process results in customers finding the right product to meet their needs; that advertising and promotional material is clear and not misleading; and that customers are given appropriate information ‘ such as key product features, the cost of a policy and details of the cover provided ‘ on which to base their decision.
Adopting processes and procedures that uphold these principles should not present a problem for intermediaries. After all, most of the aforementioned points are simply good practice and something that many brokers will be doing anyway. Further regulation will inevitably lead to additional paperwork, such as providing a terms of business document and there will also be a layer of compliance bureaucracy to contend with, but there are solutions to these problems.
Most intermediaries operating in this market will want to continue writing general insurance business, however they will not be happy about the increased regulation and the inevitable cost. This burden can be reduced, but do not do anything in haste until the outcome of the OFT enquiry has been announced.
If you are already a GISC member, continue as normal until you receive further information. If you have not registered with the GISC, then the best advice is to ‘hold fire’.
However, there is nothing to stop you from reviewing your current procedures and if you do, it may be worth taking into consideration the types of membership being offered by the GISC. It is reasonable to assume these categories will form the basis for any future voluntary or regulatory control of the market.
Membership of the GISC is entirely voluntary at the moment, but the Government wants regulation of some sort to be introduced.
The choice is simple. Either support the GISC and work within a regime that appears to have a fight- ing chance of working sensibly, or face the prospect of general insurance being regulated by a body such as the FSA.
GISC membership categories
General insurance intermediaries have three categories of GISC membership to choose from:
l Option one is to become a registered GISC member. Insurers, intermediaries and anyone acting on their behalf can apply to become a full GISC member. Under current GISC rules, membership will enable advisers to sell a range of general insurance products and advise clients on the most appropriate product for their needs. With membership will come a compliance regime which will require advisers to demonstrate tangible evidence of good practice. GISC members will be subject to monitoring visits and, although five working days notice will usually be given, unannounced visits can be made if the GISC feels there is a need to do so. Gaining membership of GISC will not be simply a case of ˜pay and display’. Applicants will need to go through a fairly rigorous vetting process to ensure they have the necessary systems in place to guarantee future compliance. GISC members (with the exception of PIA and Financial Service Authority [FSA] members and members of the Law Society) must also have full professional indemnity insurance in place.
l Option two is to become an ˜appointed agent’. As the name implies, this requires advisers to become an agent of another organisation which then takes on-board responsibility for compliance. As an agent advisers will receive the majority of supervision from the company they are ˜tied’ to, but the GISC also reserves the right to monitor their individual activities. Becoming an appointed agent does not mean tying to a single product provider, as it is possible to become a ˜multi-tied agent’ or an appointed agent of a network. Becoming a ˜multi-tied agent’ means an adviser can sell the products of various insurers, but they cannot sell more than one product of a specific type. For example, an adviser would not be allowed to sell mortgage payment protection insurance (MPPI) from two or more providers, but they could sell an MPPI product from one insurer and building insurance from another. The GISC will undoubtedly carefully scrutinise all applications from multi-tied agents as they present a greater compliance burden than individual appointed agents. Becoming an appointed agent of a network also gives an adviser access to a panel of insurers, so it is possible they can still pick and choose the best product provider to suit their clients’ requirements. However, it is worth ensuring the network is a full GISC member. The GISC is, understandably, vetting networks carefully to ensure they can provide an appropriate compliance regime for their members, so they are taking a detailed look at all documentation, administration and software to ensure it is fully compliant.
l Option three is to become an introducer. This means advisers can only display promotional material ‘ they will not be allowed to recommend products, help customers complete forms or collect premiums. This is an obvious option for the likes of retailers and car dealers who do not want to become involved in the sales process, but it is also an option for mortgage brokers who may want to sell general insurance via the internet. By using a ˜white label’ software system that can be bolted onto an existing website, customers can search and apply for general insurance products online with all administration and compliance being undertaken by the software