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Will new regulation work?

FSA - Financial Services Authority

Partly as a punishment for totally missing warnings on the banking collapse, as well as lesser failures to spot collapsing insurers and intermediaries, the government intends to transfer the regulatory functions of the Financial Services Authority (FSA) to the Bank of England and certain proposed new regulatory bodies. The FSA will cease to exist in its current form. In its place, the government intends to establish the following new entities between now and the end of 2012:

  • Prudential Regulation Authority (PRA will be a subsidiary of the Bank of England and responsible for the prudential regulation of insurance companies)
  • Consumer Protection and Markets Authority (CPMA will regulate firms providing financial services to consumers)


The Consumer Panel calls for intelligent regulation and wants to ensure that the new system of regulation learns from the successes and failures of the FSA. “Intelligent regulation means clear, joined-up and enforceable rules. Consumers need one-stop regulation from a proactive regulator so that poorly performing firms are made to play by the rules. Effective redress and timely and appropriate compensation are also vital if consumers are to have confidence in the system.”


Insurers and intermediaries should


Offer straightforward products that do what they say on the tin

  • Widely available simple, safe, comparable products that offer value for money

  • Good product innovation and effective distribution providing real choice and competition for everyone


Treat customers fairly

  • Recognise and respond reasonably to the needs of all consumers including vulnerable consumers, be this through age, location, ability, or gender

  • Transparent and proportionate pricing and charges clearly explained and notified to consumers in advance

  • An end to complex product innovation that obscures risk and to practices designed to lure in consumers or make it difficult to compare products and their true costs

  • Customers experiencing financial difficulty should be treated helpfully and sympathetically


Offer relevant and unbiased advice

  • Advisers should act as true agents of their customers providing them with independent advice uncompromised by sales, product or provider bias;

  • High professional standards for advisers and good quality, relevant advice;


Develop dependable later life products

  • Simple, reliable and comparable retirement products that are easier for customers to understand and use


Regulators should


Intelligently regulate

  • Clear, joined-up and enforceable rules focused on the firms’ approaches to dealing with customers and measurable outcomes

  • Proactive market and firm monitoring to identify and mitigate risks at an early stage

  • Effective product scrutiny to identify problems before they escalate


Make firms play by the rules

  • Credible deterrence against non-compliance so that firms fear the reputational and financial risk

  • Greater supervisory challenge

  • Senior management held to account for the activities of staff

  • Naming, faming and shaming firms to drive up standards

  • Greater transparency with regard to enforcement information so that customers can take action themselves against sharp practices


Ensure effective redress

  • Ensure firms understand their regulatory obligations to handle complaints fairly

  • Efficient complaint resolution by firms and effective cooperation with the regulator and Financial Ombudsman Service to resolve systematic complaints quickly


Demand timely and appropriate compensation

  • Clear and easy to understand limits and levels of compensation

  • Higher compensation limits


So can you look forward to insurers providing you with cheap easy to understand products? Will banks and advisors only sell you what you need, not what they want to push for the best remuneration?


Some health insurers will rise to the challenge. Changing the attitude of banks is going to be much harder. Service is probably the easy bit for insurers and intermediaries. The much harder one, that private medical and health cash insurers, and some of those selling income protection or life, have understood, is designing products that consumers want rather than what the company thinks is technically good. Critical illness insurers have an uphill struggle, mainly as they insist in designing products by industry committee.


Competition is fierce in all health insurance sectors. There are more companies wanting to sell you a product than customers wanting to buy. So for you, the customer, the message is very clear. Only deal with companies that provide what you want in a way that you want it. If they provide poor service or fail to explain to you what you get for what you pay-go to a competitor who will. They need you more than you need them.  


Health insurance: Hot topic: July 2010


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