Select Committee on Treasury Minutes of Evidence

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 well—market 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 purchased.

  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 the regulator.

  Q226  Mr Todd: How do you resolve that dilemma?

  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 vulnerability—I do not think they should, but they might regard it as that—actually 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 for business.

  Q228  Mr Todd: There are surely some core items of information—and you listed some of them at the start—which 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 understand it.

  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 consumer.

  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 policies—which is the old problem—have 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 Pension Fund.

  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 way?

  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.

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