Select Committee on Treasury Written Evidence

Memorandum submitted by Association of British Insurers



    —  Industry supports FSA Treating Customers Fairly initiative. FSA has welcomed recent ABI initiatives to improve customer experience of the Life Industry:

—  Company Boards will make key service quality commitments, and performance against these will be subject to audit and independent customer surveys.

—  Good Practice Guides will be produced in key areas such as Equity Release and Financial Promotions.

—  ABI Paying For Advice initiative aims to improve the transparency of commission payments.

—  ABI is working with Government and FSA on improving financial capability.

—  ABI is a strong supporter of the Retail Financial Services Forum.

Possible questions for the FSA

    —  Does the FSA think it will be able to provide more clarity for the industry on how the success of the TCF initiative will be judged?

    —  Will the FSA take account of industry initiatives (like those listed above)?



    —  ABI fully supports better consumer information on risk and is developing proposals based on the volatility of funds. We believe these should be complemented by a standard approach to identifying the customer's attitude to, and capacity for, risk. But FSA cooperation is needed and progress has been very slow.

Possible question for the FSA

    —  Does the FSA support the idea of risk ratings?

    —  If the industry develops a risk ratings scheme, will the FSA endorse it?



    —  The FSA's new basic advice regime for the sale of regulated stakeholder products has made a slow start.

    —  Some FSA decisions unhelpful, such as preventing basic advice sales of smoothed investment funds and a very cautious approach to the stakeholder pension.

    —  The ABI has worked closely with FSA and recently published Basic Advice Guidance for our members.

Possible questions for the FSA

    —  Does the FSA agree that more joined-up policy making is needed with the Government? (It is hard to devise a "basic" advice process given the complexity of Pension Credit.)

    —  Will the FSA's post-implementation review be a full assessment of how we can make this initiative work better and reach new savers?



    —  The Government has made clear that the FSA is not exempt from the recent Hampton/Arculus reports on better regulation.

    —  The ABI welcomes the FSA's commitment to proportionate and risk-based regulation, and wants to work in partnership with the FSA to indentify areas of regulation where the impact on consumers could be improved. The ABI is currently looking at areas where regulation may—unintentionally—inhibit innovation, reduce consumer choice, or limit access to products. (For example, FSA regulation is currently in danger of inhibiting the industry's ability to encourage saving via financial promotions, despite the much less restricted advertising which promotes consumption or borrowing.)

    —  The ABI welcomes the FSA's proposal to simplify its Conduct of Business rulebook.

Possible questions for the FSA

    —  Can the FSA clarify its approach to "guidance" as opposed to "rules"?

    —  What is the FSA doing to train its supervisors in the challenging task of assessing compliance with high-level (rather than detailed) rules?



    —  Most general insurance markets are highly competitive, so the application of regulation (and TCF) should be proportionate and risk based. (The new sales regulatory regime results from EU directives, not concerns over customer detriment.)

    —  FSA supervision should concentrate on helping firms to enable customers to make informed purchases. Where FSA identifies particular areas of concern, it should discuss appropriate solutions. New rules should be a last resort.

Possible questions for the FSA

    —  How does the FSA now regard the costs and benefits of the new general insurance sales regime (which they estimate to cost £3 per policy)?



    —  ABI supports current Government/FSA efforts to persuade the European Commission against a further raft of EU financial services legislation.

    —  Many major Member States (including France and Germany) have still not implemented the Insurance Mediation Directive (which gave rise to the new UK general insurance sales regime—see above), putting the UK at a competitive disadvantage.

Possible question for the FSA

    —  How does the FSA square its public stance against "gold-plating" EU legislation with the stated possibility of extending sales regulations for collective investment products to insurance products, despite the latter being excluded from the relevant EU directive?



    —  Recent FSA consumer research found many more consumers have now taken action to deal with their projected shortfall, following the industry's updating of its Mortgage Endowment Code of Practice and re-projection letters.

    —  An ABI-led Endowment Liaison Committee (including FSA and FOS) is identifying and addressing any problems from the current round of re-projection mailings.

    —  ABI data shows that in Q2 2005, 49% of consumers who complained about their endowment policy direct to the company involved had their complaint upheld. Of those who used a third party claims management firm, only 46% were upheld.

Possible question for the FSA

    —  What is the FSA's attitude to the claims management companies?

31 October 2005

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