Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 116-119)


24 OCTOBER 2006

  Q116 Chairman: Sir Callum and Mr Tiner, welcome to the Committee and our FSA evidence session. Can you introduce yourselves for the Shorthand Writer, please?

  Sir Callum McCarthy: I am Callum McCarthy, Chairman of the FSA.

  Mr Tiner: I am John Tiner, Chief Executive of the FSA.

  Q117  Chairman: Welcome. You know that we have taken evidence from the ABI and others before you came along and no doubt you have seen that. One of the issues in the general insurance market was the amount of regulation; it was felt that there was, maybe, regulation in certain parts of the industry which was unnecessary but, maybe, in other parts of the industry regulation should be applied. Could you give us your views on that and, also, your views on how the market is working? Is it generally working well?

  Sir Callum McCarthy: On general insurance I think we would agree that there is the prospect for the responsibilities given to the FSA to be changed, and there are a number of sectors of insurance where we think there are strong reasons for having a different regulatory regime.

  Mr Tiner: I think, clearly, we started regulating general insurance as a result of the Insurance Mediation Directive that was enacted here in January 2005, and this covered the whole waterfront of general insurance activities from the London wholesale market to dentists who were suggesting that their patients should take out some dental insurance cover. I think it has become apparent to us in the 18 months or so since that there are a number of product areas which do not require the full rigours of the Financial Services and Markets Act, which is how the IMD was implemented in the UK, in order to secure the necessary protections for consumers, and I think we think of those sectors as the motor insurance sector, the household insurance sector and the sort of pet, dental or optical areas where, quite frankly, the market works reasonably well, and I think a much reduced regime down to the minimum of the Directive rather than the full rigours of the Financial Services and Markets Act would be fine, in our view. The areas, however, that we think are absolutely ripe for a robust risk-based approach are Payment Protection Insurance, Income Protection and term assurance, which we would recommend very strongly should not be taken out of the existing regime.

  Q118  Chairman: On that area, you have had reports on PPI which have been pretty critical and, also, areas such as insurance protection and critical illness. These seem to me to be ones where more regulation is needed, given that you have just had responsibility for the general insurance market as one issue which our Committee will be looking at pretty shortly. I am looking for your advice in those areas on how we go about our business. It seems to me that PPI, critical illness and insurance protection are ripe for further examination.

  Mr Tiner: I think these are areas that we were certainly worried about from the very moment we took over insurance regulation in January 2005. On payment protection, of course, the OFT are also concerned about the competition issues there. On critical illness we mainly worried about the levels of exclusions for certain types of illnesses and whether the policy holders are aware that they may be excluded from claiming when they fall ill with certain types of sickness. Income protection—that it does what it says on the tin. So these are all areas in which there is need for improved standards.

  Q119  Chairman: The way critical illness is sold could give the impression it is income protection when it is not.

  Mr Tiner: It could do. It could give that impression.

  Sir Callum McCarthy: Critically, I think, for both PPI and critical illness insurance it is going to be essential that people set out clearly what the exclusions are because the worst issues of mis-selling have been where people have had sold to them policies which do not actually cover their own circumstances.

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