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 protectionthat
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