FSA Regulation Guidance

As you are no doubt aware there has been a substantial amount of activity in respect of regulation and your Council have been working hard to ensure that members interests are protected.

On 20 January 2004 the FSA released final Conduct of Business Rules for General Insurance. Insurers and Intermediaries now have a year to prepare for the start of General Insurance Regulation, which would take place on 14 January 2005.

Sarah Wilson, Director of High Street firms at the FSA said:-

“Insurers will also need to satisfy themselves that all links in their supply chain affected by regulation become either authorised or an Appointed Representative. Insurers will not be able to continue doing business with unauthorised intermediaries. Importantly this includes so called secondary intermediaries such as motor dealers, retailers or vets that sell insurance as an adjunct to their main business.”

The new regime will implement the Insurance Mediation Directive (IMD) requirements. The objective of the IMD is to improve consumer protection.

On the same day the FSA also published the final prudential rules for mortgage and general insurance firms, which were first published in September 2003 as part of Practice Statement (PS) 174.

So, how does this affect our members? Guidance is given below which basically deals with members acting for insurance companies and members involved in claims preparation, otherwise known to the regulator as loss assessing.

Members employed as loss adjusters acting for insurers

The basic premise of the IMD as incorporated by the Financial Services and Markets Act 2000 as amended is that the activity of assisting in the administration and performance of a contract of insurance is a specified kind of activity, which should be regulated.

However, article 39b specifically states that “a person does not carry on the activity of assisting in the administration and performance of a contract of insurance if he acts in the course of carrying on the activity of:-

• expert appraisal;
• loss adjusting on behalf of a relevant insurer; or
• managing claims on behalf of a relevant insurer.

and that activities carried on in the course of carrying on any profession or business.”

Thus the position with regard to adjusters appears to be clear. They do not have to be registered with the FSA. However, seeing the possibility of a varied interpretation by insurers of the IMD’s high level principles, CILA initiated a joint working party with the ABI to construct a protocol which effectively brings in many of the IMD principles to loss adjusting practices, for example in respect of training and competence.

The final draft of the CILA/ABI protocol is about to be issued. It is being endorsed by Council and we are awaiting the final go ahead from the ABI before publication, which is imminent.

Your Council has also met with John Greenaway MP who made the very important suggestion that the CILA/ABI protocol be scanned by the Financial Ombudsman Service for approval. Your Council will undertake to do this.

Members will be aware that the IMD was issued by the European Commission and as such, the IMD should be being implemented throughout the EU. Council has through Fuedi had its attention drawn to the fact that there may be inconsistencies in the implementation of the IMD in different European countries; for example there has been a suggestion that some countries may require their loss adjusters to be regulated despite the specific wording of article 39b with regard to loss adjusters as set out above. Council are currently making representations through Fuedi to find out the definitive position in Europe and have already raised concerns with regard to the possible restriction on professional mobility throughout Europe should certain countries require loss adjusters acting for insurers to be authorised. Once the definitive position has been ascertained (and many European countries have hardly started) we will revert with our concerns, should they be well founded, to the Chairman of the All Party Insurance Committee in the House of Commons.

Claims preparation or loss assessing

We have being making representations to the FSA with regard to claims preparation activity otherwise known as loss assessing. The FSA are about to issue some guidance and we will be writing to members separately about this. We understand that the gist of the guidance is that those involved in claims preparation work are undertaking a specified activity i.e. of administration and performance of an insurance contract and that those individuals and firms who undertake this work will be regulated and will have to register with the FSA.

As soon as the FSA’s letter is released to us we will issue guidance to all members, setting out the FSA’s position and giving guidance as to what needs now to be done.

Those who wish to register with the FSA now should go to their website www.fsa.gov.uk where guidance on how to register will be found. We will be publishing a summary of this guidance shortly. However, it is important for members to realise that registering with the FSA carries a fee the size of which depends on the amount of turnover being undertaken by the member or the member’s firm. For registrations after the 31 May 2004 that fee more or less doubles.

Representations

The Synergy Committee responded fully to CP187 and CP197 and continues to monitor and respond to the FSA’s output.