Companies selling insurance that are not registered with the Financial Services Authority (FSA) by January 2005 will not be permitted to sell or even offer advice on products.
Everyone involved in insurance-based products is affected – retailers, repairers, carmakers and also fleet suppliers such as leasing companies.
The FSA wants to raise standards of professionalism in a market that suffers from a poor image with consumers.
Retailers have three options – become fully authorised to sell and advise on all insurance-based products, become an 'appointed representative' (AR) for one or more providers to sell only the products they supply, or become an 'introducer' and have a passive display of leaflets promoting insurance-based products. It is likely that leasing companies wanting to continue to sell insurance products, likely to be GAP and early termination, will follow the AR route.
Mike Waters, head of market analysis for Arval PHH, said: 'Leasing companies are likely to take the appointed representative route so they become a seller on behalf of an insurer directly authorised by the FSA, known as a principal. Becoming authorised directly takes an awful lot of paperwork and leasing companies don't really need to do that.
'Fleets should now ensure their insurers are aware of these regulations and are taking steps to meet these new rules.'
Companies need to get their applications, which include details of training and competence, corporate governance, senior management systems of control, complaints handling and personal insurance cover, to the FSA by July 13, 2004 at the latest to guarantee authorisation by the January 14, 2005, start date. Under the Financial Services and Markets Act 2000, the FSA has six months to process the application.
The major factor influencing the Government's decision to regulate general insurance has been the need to comply with European legislation, particularly the Insurance Mediation Directive, which aims to create a single market for insurance across Europe.
To co-ordinate the management of the new initiative, the FSA has created a dedicated division called High Street Firms to deal with the thousands of companies that provide general insurance as part of another main business.
High Street Firms director Sarah Wilson said: 'The regulatory regime for general insurance is now in place. Insurers and intermediaries need to get cracking on their preparations for regulation.
'Insurers will also need to satisfy themselves that all the links in their supply chain affected by regulation become either authorised or an appointed representative.
Insurers will not be able to continue doing business with unauthorised intermediaries. Importantly, this includes so-called 'second intermediaries' – such as motor dealers – that sell insurance as an adjunct to their main business.'
Carmakers review strategies
THE massive FSA shake-up should prove a boon to car dealers and a number of manufacturers have already put strategies in place.
Toyota and Lexus, in partnership with Aon, have created a separate website for dealers which provides news updates on the regulation.
Work in progress includes identifying training requirements through a training needs analysis site set up by the Toyota and Lexus Academy.
Both Peugeot and Citroen have written to their dealer networks to explain the regulation changes and the potential impact it will have on the running of their businesses.
Kia has also issued communications outlining the known facts and what options are open to its dealers.
Honda is keeping its retailers informed of developments and is set to assess their options in respect of directly authorised versus appointed representatives as well as working with them to ensure they are compliant well before the deadline.
Most manufacturers are anticipating full compliance by their dealer network, and with such a vested interest in the profitability from selling general insurance products, it is no surprise that they are aiming to ensure full compliance.
But what action are car makers planning if dealers do not comply?
A Ford spokesman said: 'If any of our dealers are not appropriately authorised, then we will have no option but to discontinue insurance sales through those outlets. But we are not expecting this scenario in any significant number of dealers. We intend to provide as much support as necessary to ensure our dealers can continue to provide insurance for our customers.'
Manufacturers will simply not allow dealers to continue selling insurance products unless they are certain they will be able to comply with the regulations.
New FSA rules fact file
How it works:
Companies can be directly authorised by the FSA – or they can become an appointed representative. If they go for the second option, they will be regulated by a principal – a general insurance provider authorised by the FSA. It is more likely to happen in industries where insurance is not a core source of revenue, although the FSA does expect some smaller companies to seek AR status.
What is an Appointed Representative?
A company or an individual must make a contractual agreement with its chosen principal (assuming the provider is willing to appoint an agent) to become an appointed representative (AR). This will enable the AR to undertake certain regulated activities without being authorised directly by the FSA.
To enable the principal to carry out its supervisory duties, the AR must be prepared to provide access to staff, premises and records. An AR can have more than one principal but a 'Multiple Principal Agreement' must be in place first – a move that would create complex issues for principals.
To be a principal:
A principal is an authorised insurance-based product provider that takes on regulatory responsibility for contracted AR firms and individuals. It is the principal's responsibility to report its contractual agreement with an AR to the FSA for inclusion in the FSA Register.
Principals will have the controls and resources to ensure that ARs are fully compliant with FSA rules. For example, they will need to ensure the AR is 'fit and proper' to deal with client and is able to deliver the same level of protection to clients as if clients had dealt with the principal itself.