General Insurance Newsletter - Issue 3 - November 2010 by liwenting


									General Insurance Newsletter
Key information from the FSA for your firm

November 2010 | Issue 3

                                          In the last edition of our General Insurance Newsletter I briefly
 What’s inside                            mentioned regulatory reform. To reiterate, our objectives will
                                          continue as they stand today, so your current responsibilities to

 1      Introduction                      the FSA will also continue.

        Gender Directive                  The Government consultation on the new regulatory structure
                                          ended last month. We continue to work with the Bank of England

 2      Solvency II
        Payment Protection Insurance
                                          and Her Majesty’s Treasury and a clear timetable has been
                                          established for the design of the new organisations and the
                                          implementation of that design in shadow from early next year.
                                                                                                               Ken Hogg
                                                                                                               FSA Insurance Sector
        Transfers of Business
                                          Until then, we will focus on delivering the policies and reforms
        Legal expenses insurance          required to ensure stronger, more proactive regulation, including
                                          our work on proportionate, intensive and intrusive supervision.

 3      Insurance Mediation
        Directive (IMD)                   As the Solvency II Quantitative Impact
                                          Study (QIS5) exercise comes to a close,
        RDR: Pure Protection                                                                       All firms that took
                                          I’d like to thank those who participated
        Policy Statement                                                                           part should be in
                                          for your efforts. All firms that took part
                                          should be in a much stronger position to                 a much stronger
        FSA and firms reach                                                                        position to move to
                                          move to the new regime.
        agreement on MPPI                                                                          the new regime.
        The Bribery Act 2010              In this issue, we update on other
                                          Solvency II topics including the internal

 4      Controls over
        Appointed Representatives
                                          model approvals process and the three-pillar standards. You’ll also find links to our
                                          Dear CEO Letter to with-profits mutuals and information on the challenge to the EU
                                          Gender Directive.
        Dedicated web pages
        for intermediaries                Finally, we’d like to hear your thoughts on this publication. Please take time to complete
                                          our short survey so we can improve the quality of our communications to you.
        Recent speeches
        Recent enforcement cases          Ken Hogg
                                          Director, FSA Insurance Sector

 We’d like
 your feedback
 To help improve the quality of
 information we provide to you, we’d
                                          Gender Directive
 like your opinion on this newsletter.    The Belgian Consumer Association recently      Our position, which we have reaffirmed
 Please take a few moments to             challenged an opt-out in European law          with HMT, is that the use of gender as a
 complete our short questionnaire.        that allows insurance companies to use         rating factor is appropriate when based
 Your answers will help us to improve     gender as a rating factor when pricing risk.   on and supported by relevant actuarial
 our communications and find ways                                                        and statistical data. This is in line with
 to make our resources as useful and      The Advocate General’s opinion is that         current UK gender legislation and the EU
 relevant for you as possible - and       the opt-out should be annulled; however,       Gender Directive.
 it should take no more than five         this is not binding and we must wait for
 minutes. Please rest assured that your   the Court’s final judgment early next year.
 details will remain confidential and
 will not be passed to any third party.

November 2010 | Issue 3                                                                                                               1
General Insurance Newsletter

                                                                                        Payment Protection
 Solvency II
 Internal Model Approval                     •	 be aware of the likely impacts
 Process (IMAP)                                 of changes in financial                 In August, we published a Policy
 As at 6 October 2010, 25 firms had             resources requirements.                 Statement confirming a package of
 started the pre-application process and                                                measures to protect consumers in the
 around 100 others had indicated their       Ultimately, firms taking part will         Payment Protection Insurance (PPI)
 intention to join. Firms should be aware    be in a much stronger position to          market. The British Banker’s Association
 that in exceptional circumstances,          make an informed transition into           (BBA) has begun judicial review
 where a firm’s risk profile deviates        the new regime.                            proceedings challenging these measures.
 significantly from the assumptions of
 the standard formula, we may require        If you have queries about QIS5,            The measures include:
 the firm to pursue the internal model       please email or            •	 new handbook provisions to ensure
 route under Article 119 of the Directive.   get in touch with your usual                  complaints are handled properly, and
                                             supervisory contact.                          redressed fairly where appropriate;
 If you intend to apply for approval to                                                 •	 an explanation of when and why
 use an internal model, speak to your        Solvency II is more than Pillar 1             firms should analyse their past
 usual supervisory contact, or email         A focus on capital in the financial           complaints to identify if there are                            crisis and the quantitative impact            serious flaws in sales practices that
                                             studies means firms may be focusing           may have affected complainants and
 QIS5                                        their preparations primarily around           even non-complainants; and
 The submission deadline for the fifth       Pillar 1.                                  •	 an open letter setting out common
 Quantitative Impact Study (QIS5)                                                          sales failings to help firms identify
 has now passed for solo entities,           However, the Pillar 2 and Pillar 3            bad practice.
 while group submissions have until          standards are equally important. Pillar
 15 November. QIS5 tests the current         2 demands better risk management           We strongly believe this package is a
 proposals for the calibrations of the       and governance, while Pillar 3 has         sensible and fair solution for consumers
 Solvency II regime.                         new reporting requirements. All            and the industry alike and will vigorously
                                             firms should actively consider the         contest the BBA’s judicial review.
 Firms participating in the exercise will    implications of Pillars 2 and 3, and
 have several advantages. They will:         factor them into their plans.              In the interests of consumers, firms will be
                                                                                        expected to continue handling complaints
 •	 have a greater understanding of          The three pillars are mutually             while this process is ongoing. If consumers
    the new Solvency II balance sheet        reinforcing. They will help firms          are unhappy with how their complaint
    which differs from current UK            identify the key business risks            has been handled they may refer it to the
    practice;                                and apply the appropriate capital          Financial Ombudsman Service as usual.
 •	 be able to identify where further work   requirements, governance framework
    might be needed in the run up to         and business processes.                    For more information, see the
    implementation, including whether                                                   assessment and redress of Payment
    the firm wants to apply to use a full                                               Protection Insurance complaints.
    or partial internal model; and

                                                                                        Legal expenses
Transfers of Business
A number of firms are considering Part       of the complexity of the transfer and
VII transfers as part of their Solvency II   ensures the availability of appropriate    We sent a letter to all Legal Expenses
planning. A greater number of transfers      FSA resources.                             Insurance (LEI) firms outlining the LEI
may have practical implications for us.                                                 regulations and our expectations in light
                                             You should be aware that the existing      of the European Commission’s interest in
If you are considering a transfer, it is     guidance in our handbook is awaiting       the implementation of the LEI Directive
even more important that you contact         update. More information can be found on   in the UK. Firms were asked to respond,
us as soon as possible to agree a            our website.                               confirming their policy terms and
feasible timetable which takes account                                                  conditions are meeting LEI Directive and
                                                                                        Regulations. Please see the LEI letter for
                                                                                        more information.
November 2010 | Issue 3                                                                                                              2
General Insurance Newsletter

 Insurance Mediation Directive (IMD)                                                           FSA and firms reach
 The European Commission has asked the Committee of European Insurance                         agreement on MPPI
 and Occupational Supervisors (CEIOPS) to provide advice on the review of the
 Insurance Mediation Directive (IMD) early this year. CEIOPS will deliver this                 In response to our concerns about the
 advice in late autumn.                                                                        fairness of terms permitting increases
                                                                                               to premiums and reductions in cover,
 The European Commission will be launching its own public consultation                         we entered into an agreement with
 imminently and will host a public hearing in December. Once published, we                     Mortgage Payment Protection Insurance
 encourage firms to express their views on the European Commission’s proposals.                (MPPI) firms in October 2009. This
                                                                                               covered an industry-wide package of
 To help inform our views on the IMD review, together with the Treasury,                       measures for MPPI customers, including
 we have established an industry working group with both trade body and                        refunds of premium.
 industry representatives.
                                                                                               The deadline for complying with the
                                                                                               agreement was the end of June 2010.
RDR: Pure Protection Policy Statement                                                          We are pleased to report the surveyed
                                                                                               firms have:
As part of the Retail Distribution Review      This does not apply to all pure protection
(RDR), we issued a Policy Statement in         sales – only those associated with              •	 confirmed the refund to customers of
September, setting out our final policy        investment advice.                                 increases in 2009 premiums, totalling
on remuneration transparency for pure                                                             around £40m;
protection sales and advice associated         Additional changes coming into effect           •	 reversed cover reductions for customers
with investment advice.                        post RDR implementation, will also                 who experienced these policy changes
                                               allow firms to continue selling pure               in 2009;
Once the RDR takes effect, retail              protection products under the Conduct           •	 improved upfront disclosure of
investment firms must:                         of Business Sourcebook (COBS) rather               cancellation and variation terms; and
                                               than the Insurance Conduct of Business          •	 amended terms to ensure all customers
•	 explain how they are remunerated for        Sourcebook (ICOBS). This will allow firms          are made aware of the circumstances
   pure protection services associated with    to continue selling pure protection                in which firms have the right to vary
   investment advice; and                      post-RDR without the need to apply                 premiums and cover.
•	 disclose the amount of commission or        Adviser Charging.
   commission equivalent they receive if                                                       In many cases, firms have also extended
   the customer then purchases a pure          For more information, please see the            the period of notice of cancellation.
   protection product.                         Pure Protection Policy Statement.
                                                                                               In view of this positive response, we are
                                                                                               not planning any further action at this
The Bribery Act 2010                                                                           time. However, we will continue to keep a
                                                                                               watching brief and a high-level review will
The Bribery Act 2010 (the Act) received        Authorised firms should note this Act           be conducted in 12 to 18 months time.
Royal Assent earlier this year and is likely   does not replace or amend our rules and
to come into effect in April 2011.             principles. This means authorised firms         For more information, please see the
                                               who fail to adequately address corruption       MPPI Premium Variation Clauses:
The Act replaces existing anti-corruption      and bribery risks remain liable to              Industry-wide Agreement
legislation and introduces a new offence       regulatory action.
of commercial organisations negligently
failing to prevent bribery.                    It is important that all firms, in particular
                                               those using third parties to win business,
It will be a defence for a firm if it          to read and take note of our Final Notice
can demonstrate that it has ‘adequate          to Aon (a firm we have taken action
procedures’ to prevent such conduct            against) and our recent report findings on
by persons associated with it. The             anti-bribery and corruption in commercial
Government is currently consulting on          insurance broking.
guidance on what ‘adequate procedures’
can be.                                        For more information, please see our
                                               Anti-Bribery report

November 2010 | Issue 3                                                                                                                  3
General Insurance Newsletter

Dedicated web pages
                                             Controls over Appointed Representatives
for intermediaries
                                             In our supervision of the wholesale sector, we have recently identified
We have launched dedicated web pages         firms with large numbers of unregistered Appointed Representatives
for smaller insurance intermediaries.        (ARs). In some cases, these firms were not aware of their existence
These web pages feature information          and did not have systems and controls in place to monitor
on good practice, regulatory reporting       these representatives.
and provide information on the latest
regulatory developments. We would            If you have any ARs, you are responsible for all activity they
welcome your feedback and suggestions        undertake in respect of your business. You should have arrangements
for the development of the site, and on      in place to monitor your representatives and their compliance with
items to include.                            FSA requirements.

Feedback should be sent to:                  Please refer to the Glossary definitions contained in the FSA                      Handbook regarding ARs to ascertain whether you have any such
                                             arrangements that are currently unregistered. If you do have these
                                             arrangements in place, you should ensure you are complying with the
Recent speeches                              requirements in SUP 12.

Ken Hogg,                                    For more information, please see the FSA Handbook requirements
FSA Director, Insurance Sector:              relating to ARs (SUP 12).
Speech on the future of the life industry
at the Actuarial Profession’s CILA II
conference                                  Recent enforcement cases
Ken Hogg,                                   Since the beginning of this year, we           controls in place to prevent the loss of
FSA Director, Insurance Sector:             have banned 13 individuals for failings        customers’ confidential information. The
Speech on the future regulation of          relating to insurance businesses, with         fine is the highest levied to date on a
mutuals at the Association of Financial     fines totalling over £400,000. The action      single firm for data security failings.
Mutuals annual conference                   taken demonstrates our commitment to
                                            removing from the industry anyone who          We have banned four individuals –
Adair Turner,                               commits insurance fraud or fails to take       Barrie Duncan Aspden, Melanie Aspden,
FSA Chairman:                               action to prevent it.                          Gaenor Clayton and Paul Willment – of
Speech on the future of insurance                                                          Orion Direct Limited and Peppercom Plc
supervision at the International            We have fined the UK branch of Zurich          for failings in relation to insurance fraud.
Association of Insurance Supervisors        Insurance Plc (Zurich UK) £2,275,000           We also imposed a fine of £50,000 on
(IAIS) conference in Dubai                  for failing to have adequate systems and       Paul Willment.

November 2010 | Issue 3                                                                                                               4

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