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Last Updated: Tuesday, 1 June, 2004, 22:56 GMT 23:56 UK
Insurance regulation shake-up
By Robin Gordon-Walker
Financial Services Authority

Robin Gordon-Walker of the FSA

The way Britons buy and sell insurance products, from pet insurance to critical illness cover, is about to undergo a major shake-up. Here a spokesman for the City watchdog explains what it could mean for some firms, including dentists and vets - and how they can find out if they are affected.

One of the biggest changes ever to affect the general insurance industry is just a few months away - from 14 January 2005, the Financial Services Authority (FSA), the UK's financial services regulator, will become responsible for regulating firms selling general insurance products.

This includes not only policies covering homes and cars but will encompass things like pet insurance, dental insurance, protection products such as critical illness cover, and the "payment protection insurance" customers are often offered when they purchase goods under a financial arrangement.

Up to now, the sale and administration of insurance contracts has been subject to voluntary regulation and codes of practice.

But in the future, most firms that undertake these activities will need to either be authorised by the FSA or alternatively become an appointed representative of an FSA authorised firm. These changes mean they will need to keep to standards set by the FSA about how they operate, otherwise they could face sanctions.

Far-reaching rules

The new regulation will clearly have significant implications for insurance intermediaries or brokers and other financial services firms but also for the many thousands of other firms, around the country that sell or arrange general insurance products in addition to their main business, such as car dealers, veterinary practitioners and some retailers. For these firms, regulation by the FSA will be a completely new phenomenon.

Maintaining confidence in the financial system
Promoting public understanding of the financial system
Securing the appropriate degree of protection for consumers
Reducing the potential for financial firms to be used for financial crime

The activities that will be subject to regulation include such actions as: recommending a particular product; arranging the purchase of a policy (for example by sending a customer's application to an insurer); and issuing "cover notes" - temporary insurance documents - on behalf of an insurer.

From 14 January 2005, it will be a criminal offence to undertake general insurance business unless it is done by a FSA authorised firm or an appointed representative - who acts as an agent for an authorised firm.

However there are a number of exclusions available that may mean some retail outlets and other operations may not need to be regulated by the FSA.

For example, many vets and dentists will not need to become regulated if they merely display or provide information to customers and do not recommend an insurance product.

Also some retailers, other than for motor goods - vehicles and motor accessories - , will not be regulated in connection with the insurance backed extended warranties they may offer to customers. There is a similar exclusion available for travel agents when they sell customer insurance in connection with a particular holiday.

Deadline approaching

Although 14 January 2005 may seem a long way away the message from the FSA is that there is a lot for firms to consider and do before then including whether to apply for authorisation or become an appointed representative.

FSA helpline: 0845 6055525
Fact sheet "FSA regulation of insurance selling and administration" obtainable from the watchdog's website

They can find out more about regulation by visiting the Mortgage and General Insurance Regulation section on the FSA's website, where they can get a copy of the FSA's fact sheet "FSA regulation of insurance selling and administration - will I need to be authorised?"

Becoming authorised, or becoming an appointed representative, means firms will have rules to follow about how they sell or administer insurance policies, and they will need to report information regularly to the FSA about the insurance side of the business.

If a firm wants to apply for FSA authorisation, it will need to register for an application pack. This can be done online at the FSA's website, through the Mortgage and General Regulation section.

If you have any questions about whether you will need to be authorised, please contact the helpline on 0845 6055525.

To be sure an application will be processed in time the FSA must receive it by 13 July 2005 - six months before general insurance regulation takes effect on 14 January 2005.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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