Examination of Witnesses (Questions 80-99)|
10 OCTOBER 2006
Q80 Angela Eagle: You said that in
the general insurance rulebook it said that information has to
be clear, fair and not misleading. What percentage of current
information produced do you think, in this market, actually accords
with that very simple statement?
Mr Haddrill: I do not think I
am going to be drawn to give you a percentage
Q81 Angela Eagle: It might not be
a very high one.
Mr Haddrill: The FSA is now regulating
according to that principle and also according to a lot of detail
underneath it. My test for how well the industry is doing is what
is happening in relation to the Financial Ombudsman Service. Are
we seeing more cases coming forward in the general insurance area?
That is not really the case. So I do feel that, in a way, that
is my measure of whether the industry is being fair: are there
cases coming forward and are they being upheld or not by the FOS.
I think that is something well worth looking into.
Q82 Angela Eagle: In terms of the
financial promotions as well, here we have information but we
also have advertising which sometimes melts into sort of information
as well. You heard my question to the Consumer Panel about the
very worryingly high levels of breach of the rules on advertising
that are happening in these general insurance markets. Do you
worry about that and what would be your solution to what is going
on there? 80% of the general insurance promotions do not comply
with the FSA rules.
Mr Haddrill: The figure that I
do not have but I think we all ought to look at is what percentage
of that non-compliance is due to a fundamental problem that is
important to consumers, what they say that they want to know aboutthe
total price and so onand to what extent it is due to the
logo being in the wrong place. I think that is worth a bit more
exploration. I thought John had an interesting point, and so did
you, about when there was a problem that the problem was dealt
with quickly. I think the FSA does do that, and I do not think
we should be too quick to say that you need to name and shame
in order to make that stronger. They are there the following day;
naming and shaming is not going to make the advertisement that
has already been put out go away.
Q83 Angela Eagle: But their activity
is in retrospect, so the advertisement is out there and loads
of other people are thinking: "If they can get away with
it then we need to market our stuff like that". They are
chasing the breach, whereas a different system would actually
prevent that breach happening. Do you not agree we should shift
to try to prevent rather than be chasing after breaches?
Mr Haddrill: Which is why in the
Customer Impact Scheme that we have been developing for the life
industry we are producing guidance on the whole cycle from the
development of the product, through its promotion and advertising
so that there is advice and guidance out there on best practice
for firms just to try and improve that. I can see why the FSA
does not want to get into the business of vetting every advertisement
before it comes out; I do not think it is that sort of regulator.
Q84 Angela Eagle: What do you think
of the idea of having a kind of voluntary code like the Advertising
Standards Agency that the industry could set up, which would essentially
try to reward the people that stick by the rules rather than this
idea that people who can breach the rules get away with it and
get their ads out there and somehow steal a march on a very competitive
industry and on their rivals?
Mr Haddrill: I think we are moving
towards it because on the Customer Impact Scheme, as I said, we
are producing guidance. We do have a panel that oversees the whole
area that includes external members as well as internal members.
It is going to be chaired next year by Melanie Johnson coming,
obviously, from outside the industry. Whether we want to go a
further step and say that we actually need to have a separate
body to the FSA I am not so sure, because I think if the FSA is,
as you heard, taking action after the fact, I do not know that
we need an additional authority to do that.
Q85 Angela Eagle: This is at the
preventative end rather than after the breach has occurred.
Mr Haddrill: Beforehand we are
producing guidance. We can look at whether that guidance is adequate
and see whether it needs to be strengthened. I think that is the
question for this panel we have set up to look at.
Q86 Angela Eagle: Finally, on the
issue of structuring the industry, are you attracted by what seems
to be going on in Scandinavia where commissions and the commission
bias that we were talking about earlier and the business model
we have at the moment appears to be fading into history and being
replaced by something more objective and a bit more reassuring?
Mr Haddrill: I do not think that
we can leap into that Scandinavian world very easily because,
firstly, we have talked today about the need for advice and particularly
a need for advice with people who are disadvantaged, vulnerable
and so oneven in relation to quite simple products. If
advice is there it needs to be paid for. What the ABI is doing
is looking at whether there are commission structures that would
enable that advice to be delivered in a better way than the current
Q87 Angela Eagle: You are trying
to modernise the commission structure rather than move beyond
Mr Haddrill: We are looking at
options for modernisation. It will be for the companies to decide
whether or not to adopt any of those models. The ABI would actually
be operating in breach of competition law if we were to say: "There
is a model here; you must all adopt it." We cannot do that.
The regulator could possibly do it, but we cannot do that.
Mr Satchell: If I could just add,
there is now the offer of a fee or commission as part of the disclosure
Q88 Angela Eagle: The point was made
earlier that the fees are too comfortable and that, in fact, if
you are going to shift away from the harmful business model
Mr Satchell: It needs to be attached
Q89 Angela Eagle: Everybody needs
to be in a position where they do it straightaway; you cannot
make the shift.
Mr Satchell: I understand. I was
interested in what John Howard said, but interestingly that was
imposed by legislation. The fee attaching to the product is something,
in essence, that is done within the market today. Some of the
commission models have changed quite a lot. A number of advisers
are moving across to fees, to level loads, so that that is a moving
piece of the market.
Q90 Angela Eagle: You are responsible
for a kind of business model, albeit in a wider market, where
everybody else is working the harmful one. I am just interested
in how we can shift from where we are now to something that is
healthier for everybody.
Mr Haddrill: The FSA is conducting
half-a-dozen reviews around various aspects of distribution, and
the first thing we would like to see is to make sure that those
half-dozen reviews have a strategic coherence to them; that where
they overlap they produce coherent results. However, it does seem
to me that the regulator does have a role here and we are very
pleased that John Tiner has stepped up to the plate. So the process
of getting there, I think, is through this work that the FSA has
Q91 Angela Eagle: So you think that
the way of moving away from the harmful business model and into
something more healthy for everybody is for the regulator to lead
it, not for the captains of industry to think: "Our business
models are awful; we need to think about doing it"? Or is
that because everybody needs to be in the same environment and,
therefore, the shift can only happen by regulation or legislation?
Mr Haddrill: It may be that some
things can only be achieved through regulation because no one
firm can move ahead of the others, but that is not the only answer.
You are seeing a market in transition and we know that different
firms are developing different solutions in their own space and
their own time. I think this is an area where the industry's model
and regulation are fundamentally interwoven. So it is not a case
of the regulator doing something because the industry cannot;
we have to move together because the two fundamentally interlock.
Q92 Mr Todd: The FSA have rather
bravely asserted that they do not gold-plate EU requirements.
Is that the way you see it?
Mr Satchell: I think we have one
example within the general insurance industry where they have:
in introducing in the Mediation Directive requirements for direct
selling as well as intermediaries. That is one example, as Stephen
said earlier. There are areas where that happens. I think we welcome
the FSA review of their introduction to the general insurance
regulation; I am sure that is one area that they will look again
at, and we would certainly welcome some differentiation across
products and distribution channels so that the customer if he
wishes to buy a relatively cheap, pretty simple product can do
that relatively easily. We heard John Howard talking earlier this
morning about all the various disclosures that have to be given,
the interaction of FSA regulation and other regulation, and I
think we are all of a mind where if you can distil the disclosure
down to three or four key facts that the customer must understand
we would all welcome that.
Q93 Mr Todd: Are you a bit concerned
about the FSA's approach to implementing MiFID? Particularly the
scope of where it is going to apply.
Mr Haddrill: The jury is out on
that, at the moment. We have a Directive here that does not apply
to insurance, but where there are insurance investment products
that sit in the marketplace alongside other investment products
I think it does make sense for the FSA to make sure there is a
level playing field across the products, and that the consumer
gets the same sort of level of protection that is appropriate
to that product. That is the dialogue that we are having with
them at the moment. More generally, what we would like to see
more of is the FSA looking around Europe to find out what other
people are doing, and seeing whether there are other ways of achieving
outcomes for consumers that have been achieved elsewhere. There
are quite radically different models adopted in Scandinavia, for
example, in this general insurance area.
Mr Satchell: Some specific comments
on MiFID. I think, for example, in the area of complaints handling
where it can move more towards principles-based then we would
welcome that. So wherever MiFID equates to the implementation
of principles-based we would applaud that. Where it actually gets
into rather more detail than perhaps we have even now (there is
appropriateness of product for sale), that would seem to us to
drive us down into ever more detail and actually put in another
set of rules, potentially, over suitability of products for customers.
Q94 Mr Todd: In your submission to
us you made the rather coded reference: "a cost benefit case
cannot be made for extending MiFID's scope in some areas."
I assume you are communicating rather more directly than that
with the FSA, are you?
Mr Haddrill: Yesprotection
products, or something like that.
Q95 Mr Todd: The FSA have given you
notice to produce a marketplace solution on contract certainty.
Are you going to comply with their target at the end of this year?
Mr Haddrill: Yes, the FSA has
continued to monitor this as it has gone along. I think the percentage
of the market that is now completely compliant is around about
85-90%. Whether it is 100% by the end of the year, or indeed what
the FSA means by "complete contract certainty", is still
a matter at issue. There are occasions where for emergency reasons
or others you are not going to get the contract written on the
day, but it is going well and I think the FSA endorsed that view.
Q96 Mr Todd: You, presumably, commend
an approach which allowed a market solution to develop rather
than simply setting another set of rules.
Mr Haddrill: Absolutely. I think
it was one of the sea changes in thinking when that was promoted
by the FSA.
Q97 Mr Todd: I think both of you
were here when I was asking about the Oxera report and the discussion
over how to place a value on the regulatory process, and whether
there was perhaps insufficient value on the delivery of outcomes,
particularly to disadvantaged consumers. Would you agree with
Mr Haddrill: I think that is absolutely
right. There are some very direct costs that you can measure,
and that is the easy bit. I think the very difficult bit is to
measure the intangibles: have we, in effect, withdrawn products
or advice from the market in some way? Have we stifled innovation?
Have we stifled competition by virtue of the regulation? Very,
very difficult to measure. We all have a feel that that is, indeed,
the case, and I think it is beholden on the industry to try and
point to those circumstances where we have real evidence that
that is not happening. I suppose getting back to the basic advice
scenario and simple products was an area where, perhaps, more
could have been done, and there is a disadvantage in the market
to an overlay of FSA suitability.
Q98 Chairman: I have a final question.
Can I go back to the PPI aspect, which Jim was asking about. Have
all your members signed up to provide refunds in single premium
Payment Protection Insurance if the loan or credit agreement is
Mr Haddrill: I can speak for the
ABI committee that has looked at this, and the answer to that
Q99 Chairman: When you say "the
ABI committee" that is not all your members.
Mr Haddrill: No, but normally
once that has been decided at senior level in the ABI then the
members will follow suit. I cannot promise that every member has