Insurance Regulation & Accounting

Sarah Jolly

Document

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 incorporates the FSA’s agenda for consultations, discussion documents, thematic work or events of interest to insurers for the year ahead and beyond. while table 2 looks at other developments in the UK, Europe and internationally.

Table1: Forthcoming FSA papers and events of interest to insurers

Title	General insurance regulation – ICOB review
Date	December 2007
Detail	The regulator announced in September 2005 that it was to review the effectiveness of the general insurance regulatory regime following its introduction at the beginning of 2005 to comply with the EU Insurance Mediation Directive. Following the review, which tested the water for a differentiated regime between everyday, low risk insurance such as household and motor and protection products with a higher risk of consumer detriment, a consultation paper was published in June 2007 setting out changes to the insurance conduct of business rules. Final revised rules will be made in December 2007 to come into effect in January 2008.
Title	Travel insurance – extension of FSA scope
Date	Towards end 2007
Detail	The Treasury has confirmed that it wants the FSA to regulate sales of travel insurance by travel agents by 2009. The FSA said it will review the proposals following the Treasury’s next stage of consultation (which ended in September 2007) and it will issue its own industry consultation towards the end of the year regarding its regulatory approach. The Treasury says it expects travel firms to be able to apply for FSA authorisation from 30 June 2008.
Title	International Financial Reporting Standards
Date	Q4 2007
Detail	The FSA is to follow up on the changes to its prudential regimes in 2004/05, designed to accommodate IFRS and closely-related UK accounting standards. It will review the practical application of IFRS and consult on any proposed changes towards the end of the year.
Title	Commercial insurance commission disclosure – new consultation
Date	Early 2008
Detail	The FSA has been troubled by the industry’s response to its concerns over commission disclosure in commercial insurance deals and while it confirmed in December 2007 that it will not introduce mandatory rules to require brokers to disclose commission received to its clients for now, it said further work on the subject would continue in 2008. Independent analysis by CRA International found that the costs of mandating for commission disclosure exceeded the benefits. However, the FSA said it would open a new period of consultation with the industry on measures to improve the quality and consistency of disclosure to commercial insurance buyers and plans to publish a discussion paper on the cost-benefit analysis of mandatory disclosure, taking into account wider issues of market efficiency and the potential benefits of more standardised disclosures. The FSA said it will also begin thematic work looking specifically at conflicts of interest that arise from commission paid by insurers to their brokers.
Title	Regulatory fees and levies
Date	January/February 2008
Detail	The FSA has changed the consultation process behind its annual fees and levies review. Changes to policy on fees and levies will now be consulted on before the start of the New Year, and separate to the annual business plan, to give industry more time – two months instead of one – to respond. The policy changes were published for the first time separately in November 2007 – open until 8 January 2008 for responses – and a consultation covering proposed rates for 2008/9 will be published in January or early February.
Title	Financial Ombudsman Service – funding review consultation
Date	January 2008 (delayed from early 2007)
Detail	Changes to the way the FOS is funded to make it fairer for firms have been shelved with the FSA and FOS deciding to defer any serious changes until the FOS’s case load stabilizes. The review, initiated in May 2006, was expected to result in a consultation paper to discuss the more radical option, favoured by firms, to target case fees from the firms that use the service the most. The consultation had been subject to several delays, with the rules originally expected to be changed by the end of 2006, but will now be dealt with in a more modest form as part of the FOS annual budget. The FSA said the FOS is about to experience “significant volatility” in case numbers and that it “is not possible to model with any degree of certainty how significant changes at this stage would affect both the financial stability of the FOS and any alternative distribution of costs among firms”.
Title	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 next year.
Title	Financial Services Compensation Scheme – retail proposals
Date	1 April 2008
Detail	New funding arrangements following a two-year review were published in March 2007 and confirmed in November 2007 to pool the resources of all sectors when a loss exceeds the individual sector’s capacity. The total annual capacity of the scheme will be £4.03bn, lower than the proposed £4.4bn owing to reductions in the thresholds for some groups. The new funding arrangements will be in force from 1 April 2008. The FSA has scrapped the idea of a separate pool for wholesale financial services, opposed by the industry, despite what it said were “sound policy reasons” for such a scheme.
Title	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 closes 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.
Title	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. In December 2007, the regulator published its first consultation on the new regime. It said that it will introduce “lighter” rules wherever possible for travel agents – which are not required to be regulated under the Insurance Mediation Directive that oversees the UK’s insurance regime. The FSA will start accepting applications from travel agents wishing to sell insurance from 30 June 2008 and applications will need to be submitted by 15 November 2008 if travel agents wish to continue selling insurance after January 2009. Travel agents were originally excluded from the general insurance regime by HM Treasury but a review of travel insurance, announced in August 2006, highlighted concerns about the way it is sold by travel agents.

Table 2: Timetable of major UK, European and global regulatory and accounting developments

Title	European Commission - Insurance Guarantee Schemes
Date	Second half – end 2007
Detail	The Commission delayed a decision (due in the first half of 2006) on whether to propose legislation for mandatory insurance safety net schemes throughout the EU until it receives the results of a feasibility study. Terms of reference have been set and an external consultant appointed in Autumn 2006. The study could take until the second half of 2007 to be completed with the results likely by the end of 2007.
Title	Competition Commission - Inquiry into Payment Protection Insurance
Date	Feb/March 2008 (provisional findings)
Detail	The Competition Commission opened a case on PPI at the beginning of 2007, following a referral by the OFT. A final report is due Aug/Sept 2008.
Title	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.
Title	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.
Title	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. Ceiops will begin work on QIS 4 during the year.
Title	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.
Title	EC and Ceiops – review of Insurance Mediation Directive
Date	Changes scheduled for 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”. As a first step, Ceiops has been asked to look at the way the directive has been implemented. Ceiops said it intends to develop best practices and/or recommendations to the EU Commission in preparation of any overhaul of the IMD and/or the Luxembourg Protocol. The EC said the IMD could be revised as a result of the review and that these changes could take place in 2008/9. 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.

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