Further to my recent Insight article on the CP17/23 consultation paper, chapter 13 of the paper is a cause for concern with regards to product disclosure and ensuring the client has enough information to understand what he/she is buying and what he/she is committing to, warts and all.
Surprisingly, (in the light of their paper on vulnerable customers), the FCA is proposing restricting the issuing of the IPID to consumers only.
The FCA has said that they would like the profession (of insurance brokers) “to consider the merits” (pg. 39 of the CP) of issuing something similar to commercial customers, but they are proposing not to mandate this.
My concern here is that we may be missing an opportunity to enhance customer protection across the board. There will also be added clarity and protection for the insurance broker giving advice.
The focus from the Regulator has always been towards the consumer; the view being that this type of customer is more likely to need more protection than the commercial client.
I think this approach is wrong. ‘Commercial client’ is a moniker, which covers a wide spectrum, from the ‘man with a van’, to the multinational PLCs. All are commercial, but each has a different level of sophistication when it comes to the buying of insurance.
Surely a layman is a layman no matter what hat he is wearing when it comes to regulatory definitions of a customer?
Commercial insurance policies are complex, so surely it is a question of the commercial customer choosing to opt out of IPID and not being excluded willy-nilly from this protection?
Vulnerability comes in many guises, the broadest outcome of which (by far) is the inability to understand the contract being recommended.
And therein lies my dissatisfaction with the FCA stance on this.
By omitting the commercial customer of any size from the IPID process, are we doing them an injustice by refusing to establish a set of well thought out protocols with statutory authority, which will help that person understand what they have bought and what they have to do or not do to enable them to get paid fully in the event of a claim?
The IDD specifies the form and content of the IPID disclosure and there must be a separate document for each policy. As we see from the specimen in the CP, it is proposed that it shows amongst other things, what is insured, what is not insured, and what the client’s obligations are.
Surely such a document helps comply with the legal requirement to give the customer enough information to make an informed decision and with a sense of discipline, formality and regularity, it will become a standard part of the sales process?
I don’t think I need stress how such clarity of purpose will also help the insurance broker fulfil their duties to the client.
So, I do not see why this cannot be extended to a wider distribution base of SME business.
It may be that such a document may not be needed for the more sophisticated buyer, but surely it is a very simple process for that customer to opt out?
It is gratifying to see the FCA recognise the value of using an insurance broker and obtaining advice as noted on page 42:
“Commercial customers are also more likely to purchase insurance via an insurance broker or advised sales channel with the associated benefits of receiving professional advice on their insurance purchase”.
However, I do not see how this connects with the need or not to issue the IPID, and they go on to acknowledge that some form of commercial customer disclosure would be beneficial:
“We recognise that a form of summary information may be useful for some commercial customers, particularly smaller micro-enterprises.” (pg. 42)
As I suggested earlier, I do not see why the IPID requirement cannot be extended to meet the FCA’s classification above.
More and more commercial business is falling into ‘no visit’ business and the IPID document is such a wonderful example of how good regulation can move with the times to protect the client.
In the event of a dispute all that needs to happen is for there to be a check whether there is an IPID document or a waiver from the client. If not, or the documents are inaccurate, then wriggle room is limited and the cowboys who can’t be bothered to help the client make an informed decision are caught at the first hurdle, not 4 years down the line in a Court room.
As you know, I am not a fan of a ‘tick box’ approach or giving out paper for the sake of it, but I really feel that there is a genuine need for this disclosure document to be given wider consideration as it has benefits not just for the client but for the insurance broker as well.
As we are a consultation stage, we can all make our views known and influence the future, so please respond and have your say.
If you want RWA to channel any views you have as part of the consultation process, please feel free to pass them on to us and we will make sure the FCA hear these views.
Terence Clark
Chairman
