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Regulation of Insurance Industry

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As of the 14th January 2005 general insurance will be regulated by the Financial Services Authority (FSA). To comply with the regulation insurance companies, brokers and intermediaries will have to meet the industry's new standard of professionalism and competence.

The FSA, set up in 1997, is a non-governmental agency responsible for the regulation of much of the UK Financial Services Industry. It was set up to counter many of the problems encountered in the 1990's when many investments were miss-sold with huge financial consequences for consumers. The objectives of the FSA are to maintain confidence in the UK financial system, promote public understanding, protect customers, and to reduce financial crime. Since the start of FSA regulation, the financial services industry has enjoyed a stronger relationship with consumers and investors.

Until now the FSA has covered other financial services such as savings, investments, and mortgages, but not insurance. Research has shown that consumers who purchase insurance have often been given misleading advice. On making a claim consumers have found they have not only purchased the wrong policy but cannot apply for a valid claim. The enforcement of the regulation is designed to increase customer protection, reduce financial crime, and provide a clearer message to consumers.

Until general insurance came under the FSA, the only form of recourse for consumers was to complain to the Financial Ombudsman Service. The Financial Ombudsman Service could investigate brokers and intermediaries but not insurance companies.

From the 14th January 2005, insurance companies will have to provide consumers with clearer policy information which may have previously been hidden in the small print. Such information may include key fact documents setting out the premiums, terms of the policy and any exclusions. Customers will have the right to cancel a policy within 14 days.

However, consumers groups have reported large gaps in the new regulation leaving consumers open to miss-selling. For example, insurance brought from a travel agent is exempt from FSA regulation. If purchased separately from an insurer it is covered under the new rules. Traditionally, travel agents over charge for peripheral products such as travel insurance which according to many consumer watchdogs defies logic. Life and critical illness cover are subject to the same rules as car and home insurance even though the former are far more complex and there is greater scope for miss-selling.

Although the new regulation provides consumers with greater transparency it has substantially increased costs for insurers. To comply with the new regulation, insurance companies have had to update computer systems, introduce new documentation, and retrain staff. It is highly unlikely that insurance companies will bear the cost of these activities but will pass the cost onto the consumer through increased premiums. Some brokers and insurers have said the cost of regulation will increase premiums by up to 20% in the next 12 months. Other experts maintain that competition will continue to keep prices down.

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All of the insurance products and services mentioned on this page are introduced by Insurancewide.com Services Ltd, which is authorised and regulated by the Financial Services Authority. Insurancewide?s service is subject to its terms and conditions


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