FCA PR queries

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FCA press office contacts

I don’t believe the Financial Conduct Authority (FCA) press office answered my questions at all. Do you? My email correspondence is in this blog.

The FCA is the super-regulator for the financial services industry. It took a public pounding from MPs and a published report last year over briefing a journalist too much information too early. Perhaps it is being over-cautious now.

There’s a less email-heavy version of this on my business website Wheal Associates (new window), which includes more on the FCA’s problems last year.  This post contains the detail of my correspondence.

Phone and email

On 8 January. I phoned and followed that up with an email. I wrote:

I was after the regulations affecting advice and non-advice for general insurance. I am particularly interested in what standard advice sales should be and if there are any ways in which a consumer can obviously tell if a seller is giving advice or not (are there terms or names only those providing advice can use, for example).

So, for example, if a consumer wants advice about travel insurance, is there a way of knowing, when they Google “travel insurance”, which of the companies will be offering advice and which will only be selling a single product?

Does someone giving advice have to recommend the “best/most suitable” product, even if that has a lower commission payment, or only an “appropriate” product, allowing the seller to choose one with a higher commission payment to them?

I cannot find this information the FCA website.

The reply came back:

It looks a little bit messy but hopefully I’ve been able to answer your points on background in the information that’s highlighted in red.

For future reference there is a section in our handbook specifically related to insurance conduct which can be found here http://fshandbook.info/FS/html/FCA/ICOBS

I also attach a link to the section on our website which has a range of one minute guides – you may find further useful information in here if you look under the Insurance Intermediaries section:

http://www.fca.org.uk/firms/being-regulated/meeting-your-obligations/firm-guides

There is also a page on the website specifically on advice and non-advised sales:

http://www.fca.org.uk/firms/being-regulated/meeting-your-obligations/firm-guides/advice#

I hope that all helps and do come back to me if you have any more questions.

I was after the regulations affecting advice and non-advice for general insurance. I am particularly interested in what standard advice sales should be and if there are any ways in which a consumer can obviously tell if a seller is giving advice or not (are there terms or names only those providing advice can use, for example).

ICOBS 4.1.7 R

01/04/2013

FCA           Prior to conclusion of an initial contract of insurance with a consumer a firm must state whether it is giving a personal recommendation or information.

There are specific rules around how this is communicated to the consumer depending on the product being sold and the sales medium e.g. phone or face to face etc. which you can find in our handbook.

So, for example, if a consumer wants advice about travel insurance, is there a way of knowing, when they Google “travel insurance”, which of the companies will be offering advice and which will only be selling a single product?

Google is a search engine and its searches are not regulated by the FCA- therefore there is no requirement on Google to provide information on its searches on which firms are providing advice or not. But when a consumer enters a firm’s website it should provide information on the services the firm provides. Often this information is contained in the terms and conditions pages, but some firms will clearly sate this on their front page relating to that service i.e. General Insurance.

Does someone giving advice have to recommend the “best/most suitable” product, even if that has a lower commission payment, or only an “appropriate” product, allowing the seller to choose one with a higher commission payment to them?

In terms of the “standard” a sale should be, the key points here is really the eligibility of a customer to claim against a policy sold and this applies to both advised or non-advised sales for most products (there are separate requirements for packaged bank accounts)

Eligibility to claim benefits: general insurance contracts and pure protection contracts

ICOBS 5.1.1

01/04/2013

FCA

(1) 1In line with Principle 6, a firm should take reasonable steps to ensure that a customer only buys a policy under which he is eligible to claim benefits.

(2) If, at any time while arranging a policy, a firm finds that parts of the cover apply, but others do not, it should inform the customer so he can take an informed decision on whether to buy the policy.

(3) This guidance does not apply to policies arranged as part of a packaged bank account.2

The “Standard” an advised sale must reach is set out in ICOBS 2.2.2R see below. The seller must explain to the consumer the reason why he considers this is the most suitable product for the consumer. The “reason” does not need to be that it is the cheapest product or the product with the lowest commission rate, it just has to be the product which the broker considers is the most suitable product for that consumer based on the consumers demands and needs.

The broker should be able to explain the basis for this recommendation if required to do so by the consumer or the FCA. The brokers reasoning will be influenced by many factors, not least of which is the products features e.g. cover levels, excesses,   the range of products that broker has access to (this may be a limited or very large number of providers), it may include the brokers experience of the provider e.g. claims experience, complaints ratios and will undoubtedly factor in price.

Statement of demands and needs

ICOBS 5.2.2R

01/04/2013

FCA

(1) Prior to the conclusion of a contract, a firm must specify, in particular on the basis of information provided by the customer, the demands and the needs of that customer as well as the underlying reasons for any advice given to the customer on that policy.

(2) The details must be modulated according to the complexity of the policy proposed.

[Note: article 12(3) of the Insurance Mediation Directive

Please note: she has sent me specific sections of the regulations called Insurance: Conduct of Business Sourcebook, or known as ICOBS.

I replied:

I have a few specific questions. Would it be possible to get answers from a named official within the FCA? I’d be happy to do a phone interview with them, or come in to meet in person.

ICOBS 5.3.3 states: “If an insurance intermediary informs a customer that it gives advice on the basis of a fair analysis, it must give that advice on the basis of an analysis of a sufficiently large number of contracts of insurance available on the market to enable it to make a recommendation, in accordance with professional criteria, regarding which contract of insurance would be adequate to meet the customer’s needs.”

This has been interpreted to mean that brokers do not need to recommend the best or most suitable policy or even one of equal value that is cheaper. They can recommend an inferior policy as long as it is “adequate”. They do not need to inform the customer that there are similar policies cheaper or that there are policies that would be better.

Is that correct?

If the broker has several policies that are “adequate” is it acceptable to recommend the one that pays the highest commission to the broker? Is this acceptable only when all the adequate policies are broadly equal? Or is it also acceptable when there is a far superior policy available but it pays significantly less commission?

In the guides you sent links for there is FCA guidance on selling optional extras: “if you are giving advice explain you will need to assess the customer’s suitability for the optional extra and explain how it will meet the customer’s demands and needs.”

If a broker has added on to their motor policy a breakdown cover, is it acceptable for that breakdown cover to be totally inadequate – specifically, for example, restricted to recover a broken down vehicle only a few miles from the registered address of the insured, rather than be nationwide?

Can a broker be giving advice on one product, say motor, but not be giving advice on the add-ons? (The AA sells motor insurance from a panel of insurers, so I assume gives advice, but only sells one breakdown product and says very clearly it is not giving advice). Is there a separate class of regulation for advice givers and non-advice sellers – they all claim to regulated by the FCA.

The big issue I still cannot see an answer to is how does a consumer identify between firms giving advice and firms not giving advice. Can a firm describe itself as an insurance broker and yet give no advice?

The following day I received a question:

Hi Chris

I’m trying to get a sense of what the article you are writing is about – can you give me the basic angle of the piece?

On the last point – the firm has to tell a customer if they are giving advice or no but even if the sale is non-advised it still has to be suitable and the customer eligible to claim.

I gave an honest answer:

I am writing a piece on the dumbing down and reduced professionalism in the selling of general insurance – how it has become like selling candy to children instead of giving proper advice and how customers are getting the wrong product or, as products are simplified and commoditised customers are not able to buy the products they actually need. I am pointing out exceptions to this, such as BIBA’s find a broker service.

That was 11.08 Friday morning 9 January. On Tuesday 13 January I chased up but had no answer. On Wednesday 14 January I chased up again. At 15.47 I received a message saying:

I’m just getting a quote signed off for you and I’ll come back.

I replied:

Thanks,

It’s just that your original answer contained the lines: “The seller must explain to the consumer the reason why he considers this is the most suitable product for the consumer. The “reason” does not need to be that it is the cheapest product or the product with the lowest commission rate, it just has to be the product which the broker considers is the most suitable product for that consumer based on the consumers demands and needs”

I don’t think that’s right. I don’t think the rules mean the broker has to recommend the “most suitable” product, only one that is adequate.

I’d be delighted to hear that brokers have to recommend the most suitable.

The response, at 17.28, said:

Here’s our response:

The rules surrounding the sale of insurance products have not changed substantially since Insurance Intermediaries were brought within the regulatory framework in October 2004 and, as we stated previously, the current rules are based on the Distance Marketing Directive and the Insurance Mediation Directive.  Any additional discretionary rules or guidance that the UK has made to the Insurance Conduct of Business Sourcebook (ICOBS) have been introduced to clarify existing rules or to improve protection for consumers in the light of evolving business models or additional firms coming in scope for regulation, e.g. Packaged Bank Accounts and Travel Agents. The rules and guidance surrounding the sale of insurance products are set out in ICOBS and these need to be read and understood in the context of the full Sourcebook. To interpret one rule in isolation may be to misunderstand or misinterpret the full requirements made of a broker. For information the IMD is currently being renegotiated in Brussels and significantly updated so the Handbook rules in this area are likely to be reviewed over the next two to three years.

The FCA is proactively working with the industry and with consumer groups to ensure that consumers are at the heart of firms’ business models and that consumers are treated fairly and buy products that provide them with cover appropriate to their demands and needs and which they can claim against should they need to do so.

We also have rules on cancellation periods and to require that information provided to consumers must be clear, fair and not misleading so we have tools for intervention if brokers are found to be acting against the consumer interest.

Here is a link to the relevant consumer advice on the MAS pages: When to use an insurance broker – Money Advice Service

As highlighted in the text our rules need to be all read together and not a single on in insolation.

I replied immediately:

That does not answer my questions does it?

Can I speak to someone urgently in the morning please?

But after 5.30, what hope was there?

At 10am the following morning I received an email saying:

The broker needs to be able evidence the advice that they have given and why they have recommend the product that they have and it’s based on customer demands and needs.

So where advice is given, ICOBS 5.3.3R says:

If an insurance intermediary informs a customer that it gives advice on the basis of a fair analysis, it must give that advice on the basis of an analysis of a sufficiently large number of contracts of insurance available on the market to enable it to make a recommendation, in accordance with professional criteria, regarding which contract of insurance would be adequate to meet the customer’s needs.

As I said in my answer yesterday you cannot read single rules isolation and as well as ICOB rules apply here there will also be elements of our rules on treating customers fairly.

I think that means the FCA press office cannot, or will not, say clearly how regulation is meant to work. I think these questions have not been answered:

Does a broker have to recommend the “most suitable” or only one that is “adequate”?

Does the broker need to inform the customer that there are similar policies cheaper or that there are policies that would be better?

If the broker has several policies that are “adequate” is it acceptable to recommend the one that pays the highest commission to the broker? Is this acceptable only when all the adequate policies are broadly equal? Or is it also acceptable when there is a far superior policy available but it pays significantly less commission?

Is there a way of the consumer knowing which of the companies will be offering advice and which will only be selling a single product?

Are there terms or names only those providing advice can use? Can a firm describe itself as a “broker” but sell only one of each product from a single insurer rather than offer advice on a range of products from across the market?

If a broker has added on to their motor policy a breakdown cover, is it acceptable for that breakdown cover to be inadequate –restricted to recover a broken down vehicle only a few miles from the registered address of the insured, rather than be nationwide? (It would appear that regulation only insists that the consumer must be able to claim on the policy and if the policyholder broke down with 10 miles of home they could claim so selling an inadequate policy is not mis-selling if no advice were offered.)

So who thinks the PR has, answered my questions?

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