Insurance Regulation & Accounting
Coming your way…
IR&A’s timetable is regularly updated to cover as many new developments as possible while also keeping an eye on events as they unfold. The first table is dedicated to the FSA’s agenda for consultations, discussion documents, thematic work or events of interest to insurers for the year ahead. A second table lists developments elsewhere in the UK, Europe and internationally.
| Development | Disclosure – discussion paper |
| Date | First quarter 2008 |
| Detail | In October 2007, David Kenmir, managing director of regulatory services at the FSA, revealed that the FSA is interested in “the extent to which we could better achieve our statutory objectives by disclosing more about what we know or think about individual firms”. It wants to look at how increasing disclosures could improve regulatory outcomes across authorisation, supervision and enforcement. The regulator said it expects to come across some “difficult issues”, given the constraints of legislation on disclosure. It will talk to the industry in the coming months with the prospect of publishing a discussion paper in the first quarter of 2008. |
| Development | Retail Distribution Review – discussion paper feedback |
| Date | April 2008 |
| Detail | The FSA published a discussion paper in June 2007 on the future of retail distribution after a year of deliberation. It proposed a three-tier system of advisers: two categories of advisers for more complex needs (professional financial planners and general financial advisers) and one group for less complex needs (primary advice service). Its suggestion that professional financial planners should only receive remuneration from customers and not product providers has already caused controversy as has discussion over the use of the term “independence”. The response period closed at the end of 2007, and the FSA has said it now plans to issue an interim statement in April, given the weight of responses, before a full feedback statement in October 2008. |
| Development | Travel insurance – extension of FSA scope consultation paper |
| Date | May/June 20088 |
| Detail | Following Treasury confirmation of its decision to extend the regulation of travel insurance to travel agents at the end of 2007, the FSA published a consultation paper on how it will regulate travel agents. The FSA said it aims for a “lighter regime” than IMD requirements as travel insurance sold as part of a holiday package is not covered by the directive. Under the proposed rules, travel agents will be required to have one “approved person” and comply with the FSA’s requirements on client money, professional indemnity insurance and new conduct of business rules for general insurance. The consultation paper closed to responses on 18 March 2008 and a policy statement is expected in May/June 2008. The FSA said it expects to start accepting applications for new authorisations from 30 June 2008 in time for the new rules to take effect from 1 January 2009. Applications received before 30 September 2008 will qualify for a 30% reduction on application fees. Under an interim authorisation regime provided by the Treasury, firms applying by 15 November 2008 will be able to continue selling travel insurance from January 2009. |
| Development | International Financial Reporting Standards |
| Date | Q2 2008 |
| Detail | The FSA has delayed its review of the practical application of IFRS and the implications to its prudential regimes. Originally due to be published at the end of 2007, the FSA will now release a consultation in the second quarter of this year, which it said would give it more time to consider “current accounting issues”. |
| Development | Treating Customers Fairly |
| Date | March 2008 and December 2008 |
| Detail | The FSA has set two deadlines for retail insurance firms to comply with its Treating Customers Fairly requirements under Principle 6. By March 2008, retail firms selling policies to customers must have the appropriate management information in place to test whether they are treating customers fairly (an update report on market progress is due in the second quarter of 2008) and by December 2008 firms must be able to demonstrate that they are consistently treating customers fairly. |
| Development | General insurance regulation – new ICOB rules |
| Date | 5 July 2008 |
| Detail | The regulator published a policy statement in December 2007 confirming changes to the Insurance Conduct of Business sourcebook that take effect from 6 January 2008. The FSA says the new regime “is a significant step forward in our programme of principles-based regulation” with the removal of many of the more detailed rules for low risk general insurance products that are not required under the EU Insurance Mediation Directive but the addition of new rules for higher risk protection products: term assurance, critical illness, income protection and PPI. Providers and intermediaries of protection insurance products have six months – until 5 July 2008 – to comply with the new rules. The FSA first announced that it would review the effectiveness of general insurance regulation in September 2005. A consultation paper was published in June 2007 proposing a differentiated regime for low and high risk general insurance products. |
| Development | Commercial insurance commission disclosure thematic work |
| Date | Third quarter 2003 |
| Detail | The FSA confirmed in December 2007 that it will not introduce mandatory rules to require brokers to disclose commission received to its clients for now, but said further work in 2008 could lead to stricter rules. In the first half of this year the FSA is undertaking thematic work to consider the extent and nature of conflicts of interest arising from remuneration and contractual agreements between insurers and brokers. The FSA expects to publish its findings during the third quarter of 2008. In a discussion paper published in March 2008 (deadline for responses, 25 June 2008), the regulator said mandatory disclosure is still an option, alongside an enhanced on request regime and more rigorous supervision and enforcement of existing rules. Independent analysis by CRA International in December last year found that the costs of mandating for commission disclosure exceeded the benefits. The regulator said it will consult on any changes to the handbook in Q4 2008 with a view to publishing final rules in Q1 2009. |
| Development | Payment Protection Insurance |
| Date | Third quarter 2008 |
| Detail | As part of its treating customers fairly initiative, the FSA is targeting poor sales practice in PPI. An update on its work in this area – known as Phase III after several earlier work streams – is due in the third quarter of this year. The FSA is conducting site visits, mystery shopping and analysis of peer group data to identify the worst performing firms and address the major issues. |
| Development | Travel insurance regulation |
| Date | 1 January 2009 |
| Detail | HM Treasury has requested that the FSA authorise and regulate travel agents selling insurance as part of its general insurance regime from the beginning of 2009. |
| Development | IASB - Phase II of IFRS accounting for insurance |
| Date | First quarter 2008 |
| Detail | Work on Phase II started in 2004 and after several delays a discussion paper was published in May 2007, the first output from the IASB on Phase II. The date for responses closed on 16 November, and the period of debate has been nothing if not lively. The IASB will consider the responses during the first quarter of 2008. An exposure draft is expected to follow in 2009 and an insurance standard is not on the cards until at least 2010. |
| Development | European Commission - Insurance Guarantee Schemes |
| Date | Spring/Summer 2008 |
| Detail | The EC said it will launch a public consultation on the findings of an independent report on the feasibility of mandating for insurance guarantee schemes across Europe in the Spring/Summer of this year. A public hearing is scheduled for 2 June 2008. The Oxera study, published in January 2008, said it is “unlikely” that an EU-wide insurance guarantee scheme will be proposed but said it had identified areas where some of the differences between existing guarantee schemes could be minimized to improve consumer protection. The EC put a decision on whether to raise new legislation (due in the first half of 2006) on hold until the study was completed. |
| Development | Competition Commission - Inquiry into Payment Protection Insurance |
| Date | May 2008 (provisional findings) |
| Detail | The Competition Commission opened a case on PPI at the beginning of 2007, looking at whether any features of the PPI market have an adverse effect on competition, following a referral by the OFT. A final report is due Aug/Sept 2008. |
| Development | ABI Solvency II conference, London |
| Date | 10 June 2008 |
| Detail | The Association of British Insurers follows up its previous Solvency II events at a crucial time for the framework directive. Speakers from the European Parliament, European Commission, Council of Ministers, UK government and other key organisations will provide an update on the directive and the challenges and opportunities for firms. |
| Development | European Commission – Framework directive for Solvency II |
| Date | 2008 |
| Detail | The EC published its framework directive for Solvency II in July 2007, kick-starting the political process that will now ensue. The Council of Ministers and the European Parliament will look at the framework, and the timetable for now estimates about 12-18 months (from mid-2007) before the project hands back to Ceiops to develop implementing measures which the Commission hopes will be in place by 2010 to give firms until 2012 before the measures become effective. |
| Development | Ceiops QIS 4 |
| Date | July 2008 |
| Detail | Ceiops has officially launched the fourth quantitative impact study which will provide a particular focus on insurance groups and will also look again at the problematic issue of calculating the Minimum Capital Requirement. Companies are encouraged to participate through their national supervisor and Ceiops wants to receive contributions through the national supervisors by 7 July 2008 and by 31 July 2008 for (re)insurance groups. |
| Development | HM Treasury High Level City Group on Competitiveness |
| Date | During 2008 |
| Detail | The London Insurance Market Review Group, set up as part of the Treasury’s High Level City Group and headed by Lloyd’s chairman Lord Levene, updated the Treasury on its work on the modernisation of the wholesale insurance sector at a special Insurance Summit in November 2007. The High Level Group met for the third time and economic secretary Kitty Ussher said she will hold another meeting with MPs in 2008 to discuss the UK’s principles-based regulatory approach. |
| Development | Davidson Review of Implementation of EU Legislation |
| Date | By end 2007 and by July 2008 |
| Detail | Lord Neil Davidson QC’s review of the UK’s implementation of EU legislation identified the Insurance Mediation Directive as over-implemented in the UK. It recommended that the Treasury should consult on reducing the scope of activities caught by the FSA’s regulatory regime by the end of 2007. In addition, it recommends that the FSA should simplify rules on product disclosure, remove the requirement for insurers to check the authorisation status of intermediaries, reduce and simplify client money rules and reduce prescriptive rules in areas such as training and staff competence - all by July 2008. |
| Development | EC and Ceiops – review of Insurance Mediation Directive |
| Date | 2008/9 |
| Detail | In its green paper on retail financial services (published at the end of April 2007) the European Commission said it is to review the Insurance Mediation Directive “to make sure it is achieving its objectives of protecting consumers while promoting the single insurance market”. A Ceiops survey concluded that it is too early to propose changes to the legislation. However, it did recommend three minor changes to the Luxembourg Protocol and recommended that further work should be undertaken on the prospects for change in two areas: scope and PPI geographical coverage. The EC’s Charlie McCreevy agreed that major changes to the directive were not necessary at the moment but he said the EC has received complaints about the implementation on the directive in three member states. The EC will now focus on implementation of the IMD and enforcement and is has not ruled out reviewing the directive again at a later stage. On publishing its report into the competitive practise of business insurance, the commission said it would include disclosure of fees and commission within the IMD review. |
| Development | EC Single retail market review |
| Date | 2008 |
| Detail | The results of the EC’s review of the retail market in Europe revealed a lack of integration for pan-European products, including retail insurance. The EC said it intends to look at the use of national general good provisions, and in particular whether they are creating obstacles to cross-border business. The EC said it will make an inventory of national general good requirements and possible cases of “abusive or excessive” enforcement will be taken up with individual member states. The EC said it will also look at the reasons for “relatively large price differences” charged in different member states for the largest classes of retail insurance: home and motor policies. The EC said it may develop best practice guidance to reduce the cost of claims as a result of its work. |