Examination of Witnesses (Questions 220-239)|
24 OCTOBER 2006
Q220 Mr Newmark: Yes. You are saying:
"For all you guys, you have to go to the Ombudsman."
In settling things normally, you settle with all people. You do
not say, "We are just going to settle with one group and
for the rest of you there is a different route and you have go
there." That seems inequitable to me.
Mr Tiner: I do not think it is
inequitable, given that they are, by their very character, different
classes of shares. They were different levels of risk, different
levels of income distribution, and I think that persuaded us that
we should, through the settlement, distribute that to those who
came in on this deal thinking basically that they had a copper-bottomed
capital guarantee. They did not, and they never did, but many
of them came in on that basis. I think, therefore, we felt they
were the most deserving cause.
Mr Newmark: Thank you.
Q221 Mr Todd: Could we turn to general
insurance and your role. You have a goal of ensuring that there
is clear, simple and understandable information available for
and used by consumers. Have you researched what information consumers
find most useful and use in determining product choice?
Mr Tiner: In the general insurance
market we have. In fact, we did that at the time the policies
were written, when the insurance mediation directive was being
implemented throughout the European Union. I made comments earlier,
with respect to what I regard as relatively low-risk insurance
products where the market works pretty wellmarket household
and so on. My feeling is that many of the requirements, because
they are built in, are over-elaborate. With 18 months' experience,
I hope we will be able to trim back quite a bit of that.
Q222 Mr Todd: What did consumers
tell you they found most valuable in terms of information in making
a product choice?
Mr Tiner: I think they want to
know what they are getting, what the exclusions are, what the
price is, what the claims arrangements are and whether they are
getting advice or not getting advice, whether they are on their
own or whether they have resource to complain if they feel they
have been misadvised. It is those sorts of things that customers
said they wanted to know.
Q223 Mr Todd: As you have said, the
documentation they currently receive is often extraordinarily
lengthy, with vast quantities of small print which leaves consumers
at the very least confused and potentially concerned, as well,
that they may not have understood fully the product they have
Mr Tiner: Yes. We have seen some
very good examples from some firms who have worked very hard to
create some clarity around the policy, what it covers, what it
does not cover, what it costs, how to make the claim and those
sorts of things, and there are others who have taken a very legalistic
approach which is not for the benefit of consumers. I think we
have understood now that, in those lower risk markets, if the
Government were able to create a cut-down regime which is still
directive compliant then that will make a lot of sense.
Q224 Mr Todd: This would be focused
on the simpler products that we are talking about.
Mr Tiner: Yes.
Q225 Mr Todd: The industry itself
has some concerns about the FSA being over-prescriptive in this
field, but I think it is also fair to say that they have an anxiety
that if something is not listed then they may be caught out at
some stage in the future. So you are hung, whichever way!
Mr Tiner: Yes. It is the job of
Q226 Mr Todd: How do you resolve
Mr Tiner: That is the tension
between having a very prescriptive rules-based system and having
a more principle-based system. I think the industry and the FSA
need to accept a level of ambiguity, what the firms might regard
as vulnerabilityI do not think they should, but they might
regard it as thatactually for the good of the market. A
massive level of prescription in some markets does not help the
consumer being informed and well protected, but there has to be,
I would accept, probably an increasing level of trust then between
the regulator and the firm/the firm and the regulator to do that.
Q227 Mr Todd: I am not entirely clear
whether they want more regulation or not in this field.
Mr Tiner: I do not think they
want more, but, whenever we try to take rules away, we get complaints
because we seem to be taking away some trade association's favourite
rule. But we are fairly determined to challenge and to press on
with this approach because we think ultimately it will be good
Q228 Mr Todd: There are surely some
core items of informationand you listed some of them at
the startwhich any sensible consumer would wish to know
about any product.
Mr Tiner: Yes.
Q229 Mr Todd: And which should be
obligatory and printed in a very clear format so that people can
Mr Tiner: Yes.
Q230 Mr Todd: Then there is a range
of other things which could legitimately be covered by principles.
Mr Tiner: I think so. I will give
you one example: if you phone up for a motor quote I think you
get a 25-30 second spiel on something and a lot of people put
the phone down during that period. They have gone in 20 seconds.
The question is: does that add anything or could you do it on
a more sensible basis?
Q231 Mr Todd: I was going to ask
you about telephone sales, which is the way in which a lot of
these products are now sold.
Mr Tiner: Yes.
Mr Todd: I was going to ask you about
telephone sales, which is the way in which a lot of these products
now are sold. The rules that we have seem singularly ill-adapted
to a normal telephone conversation. The caller receives a lengthy
monologue before they can say anything at all, and, as you say,
we cannot really make legitimate comparisons.
Chairman: We have one example here where
there is a 200-word introduction.
Q232 Mr Todd: We have received some
evidence from John Howard on this, on the interaction between
regulations from you, from Companies House, the Information Commissioner,
the Motor Insurance Bureau, a whole series of different bodies
with different recommendations, often overlapping, as to how you
communicate effectively with the customer. Is there some way in
which one can bring some of these practices together so that the
consumer gets a clearer explanation and a shorter one?
Mr Tiner: I do not know. At the
moment, I do not know of any central facility where all those
things will come together. All the separate bodies that you mention
there just have to work very hard to keep things simple for the
Q233 Mr Todd: Do you not have an
ownership overall over that task?
Mr Tiner: I am not sure.
Q234 Mr Todd: You are right, they
are all separate bodies with slightly different agendas, but your
responsibility is clearly to serve the consumer in this matter
and to ensure that they are properly informed.
Sir Callum McCarthy: I think it
goes back to those things that we are concerned to try to get
real attention paid to as the core information, because, irrespective
of whatever we mandate, it would be completely improper, we believe,
for us also to say to firms, "You cannot give this particular
advertising material." We are trying to get the core information
that John described and get it described clearly, unambiguously,
and get that requirement observed, because there is still a problem
of observation of this.
Q235 Peter Viggers: On a previous
occasion, I raised with you, Mr Tiner, I remember, the issue that
some insurance institutions, notably Lloyd's, were trading on
the basis that they would enter into insurance with the contract
details to be written later. I recall that you shared my incredulity
that any organisation could operate in that way. Are you able
to give us a progress report on any manner in which you have been
able to encourage an improved practice of having contractual terms
clear at the time?
Mr Tiner: Absolutely. This is
the challenge to the wholesale insurance market, to create some
contract certainty by December this year. At the last count, which
I think was at the end of June, something like 80% of contracts
in the Lloyd's and London market insurance market were being issued
within 30 days of the cover being agreed. The operating models
around how slips were signed in Lloyd's and how they translated
into policieswhich is the old problemhave been significantly
re-engineered to allow these policies to emerge. I think we have
seen a sea change in that. What is interesting is that this is
a problem that exists around the world but it is not something
that other regulators and other markets seem to be addressing.
It has just become a malaise in the insurance industry globally
that they allow this sort of thing to happen. London will gain
competitive advantage from providing much more contract and more
legal certainty in relation to the policy than other centres ultimately.
Peter Viggers: Chairman, that is reassuring.
Perhaps I should have declared an interest as a residual underwriting
name of Lloyd's through Equitas and as Chairman of the Lloyd's
Q236 Ms Keeble: In 2005 you found
there were problems with the sale of equity release products and
you were going to do some follow up. I wonder if you find the
practice there has improved, particularly referring to what was
found to be the habit of some advisors of advising people to release
more equity than they needed and then invest in other products
and getting dual commission. So first, in general, and then specifically
about that point on which questions were raised.
Mr Tiner: Yes, we followed that
up in June this year with visits to 23 firms who sell and advise
on equity release mortgages. We found a generally much better
picture than we did the previous year and specifically we found
that consumers were not being encouraged to over-borrow and then
to invest on the other side and commission gets paid twice. We
found very significant improvement there.
Q237 Ms Keeble: Are you satisfied
with the position or do you feel there is still room for further
improvement, and, if so, in which areas?
Mr Tiner: We think there have
been improvements. I think further improvements can be made. I
mentioned earlier that particularly for people who are being approached
who are relatively young for this sort of product, if I may put
it that way, in the 55-65 category, they should be aware of other
sources of household income that they could create other than
releasing equity in the mortgage. For example, are they maximising
from the benefits system, as I mentioned. I think we want firms
to be clearer that equity release is the right product for them,
having considered all other options. So there are two or three
things, we have said to the industry, that we think they can improve,
but, overall, we have found standards much better.
Sir Callum McCarthy: One of the
things that makes this an area of particular concern is that,
clearly, if you move away from the 55-65 year olds, up the age
groups, there is the prospect of dealing with people who are less
acute and who need a degree of protection. That is why we keep
coming back to this area.
Q238 Chairman: There are some financial
institutions yet who are a bit nervous about selling this because
it is a risky product. Given the undoubted increasing market there
will be for this in future years, is there not improvement yet
for ensuring that it is sold in a totally responsible, fair-minded
Mr Tiner: I think releasing equity
in a person's house is going to be an important source of income
for many families for a long time to come. This is a product which
is important to society for probably decades. It seems to me that
we want to see a product which is well designed, carefully put
into the hands of distributors, with all the right incentive structures
to sell it responsibly. I think there are real opportunities there
for some of the larger brands. Our concern, as Sir Callum has
said, is that you are dealing very often with a very vulnerable
consumer at the end and we want to see the industry respect that
and behave properly.
Q239 Chairman: On LSE regulation
the financial secretary came out with his proposals a couple of
weeks ago. Are you satisfied with that and that it will secure
the position of London in the FSE in regulatory matters and that
there will no be any outside interference?
Sir Callum McCarthy: I think it
was a very useful step to make sure that there is not a risk of
extraterritoriality associated with the foreign ownership of the
London Stock Exchange, if that were to occur.