Car Care Plan Guide to FSA Regulation of General Insurance

What is it?
As a result of the European Insurance Mediation Directive the Financial Services Authority (FSA) has imposed statutory regulation on the sale and administering of General Insurance products from 14th January 2005.

To help you understand some of the implications of this new legislation Car Care Plan has prepared this simple, easy to understand guide.

Whilst reading the guide you should bear in mind the following questions:


What are General Insurance products?
There is no definitive list but typical products include:
MBI
Credit Protection
MOT Insurance
Some rescue/recovery policies
Motor Insurance (free or sold)
GAP
Tyre Insurance
Key fob insurance.

What does this mean to you?
If you are not authorised by the FSA on 14th January 2005, you will not be able to sell General Insurance products.

If you are not authorised your General Insurance providers will not be able to supply you with General Insurance products and it will be a criminal offence to offer such products outside of the regulations.

What are your options?


N.B. If you wish to carry on as now the only viable option is to become authorised. This is the route that Car Care Plan recommends.

Further information on these issues can be obtained from the FSA website - www.fsa.gov.uk or www.motorcompliance.com

Implications of becoming authorised

Requirements Common to all Applicants

Application Form
Must be completed by all firms applying. It is over 60 pages long, although a good proportion of this is made up of explanatory notes. In addition not every section applies to everybody. The form covers both insurance and mortgage business. The last few pages relate to appointed representatives which will not need to be completed by firms not appointing representatives.

Approved Persons
All firms applying for authorisation must have fit and proper people running the organisation and submit details of the individuals it wishes to designate as "approved persons".

These are persons who either:

Have significant influence (management functions/systems and control functions) - probably board members.

Have a shareholding of at least 10% in a firm, even if they take no active part in its day to day operations.

Have ultimate responsibility for customers and their property.

Capital Resource Requirements
Authorised firms holding client money must maintain net assets of the highest of:
a £10,000
b 5% of net income from insurance

Training and Competence

It is the responsibility of firms to ensure that individuals are (and remain) competent for the work they do, that they are adequately supervised, that their competence is regularly reviewed, and that their level of competence is appropriate to the nature of the business.

There are no exam requirements and no specific knowledge requirements for specific functions – it is up to the authorised firm to decide.

Examples of the types of competence required by different types of staff are shown below.

Sales Staff
General Principles of Insurance
Disclosure Requirements Cancellation and Refund Rights
Product Knowledge
Demands and Needs Statement Complaints Procedures
Admin Staff
General Principles of Insurance
Cancellation and Refund Rights Product Knowledge Complaints Procedures (If involved in process e.g. helping customer to complete proposal form)
Service Staff
General Principles of Insurance
Claims Procedure Product Knowledge


Car Care Plan has linked up with the Insurance Training Consortium (ITC) to provide an IMI/City and Guilds accredited training solution, the Certificate in General Insurance for the Motor Industry which should provide you with a full training and competence solution. The likely cost of this training is approx. £160 per individual.

Application Fees
These depend on income from insurance and format and timing of application. Examples are:

Insurance income in
<£1m band
Timing Format Fee £ Timing Format Fee £
Pre 1/6/04 Electronic 500.00 After 1/6/04 Electronic 1100.00
Pre 1/6/04 Paper 600.00 After 1/6/04 Paper 1200.00


N.B. FSA estimates that applications will take up to six months to process, if correctly completed.
Applications received after 13th July 2004 are thus not guaranteed to be processed by the start date of regulation which is 14th January 2005.

Other Cost Implications

Annual FSA Fee
Not yet determined but will be based on insurance income, will probably be a percentage and will be a minimum of £750.

Financial Ombudsman’s Service (FOS) Levy
Contribution to fund to be set up by FOS to pay claims where provider has failed – amount to be determined, but will probably depend on the amount which has been paid, by FOS, in the preceding period.

FOS Case Fee
If a complaint is investigated by the FOS there will be a case fee payable by the provider which will not be refundable even if the complaint is rejected. This amount is still to be decided, but for firms already regulated it is £360 per case.

Professional Indemnity Insurance (PII)
Must be maintained by authorised firms with a minimum of £1m for a single claim and £1.5m in aggregate.
For further information contact www.finchgroup.net/dealership.pi or telephone 0870 380 0500 or contact a specialist insurance broker.

PII is not required if:

a The intermediary is part of a group with net tangible assets of £10m or more.
b If not part of such a group, can use a comparable guarantee from an authorised non-group company with net tangible assets of £10m or more.

Reporting
The FSA will require information from firms periodically to ensure they continue to comply with the Regulations. The content and timing is currently subject to consultation but will probably cover the following areas:

a Balance Sheet d Client Money g Conduct of business issues
b Profit and Loss e Professional Indemnity Insurance conditions h Product Sales
c Regulatory Capital f Training and Competence i Complaints

Car Care Plan is authorised and regulated by the Financial Services Authority (FSA).

Car Care Plan Guide to FSA Regulation of General Insurance
What is it?
What are General Insurance products?
What does this mean to you?
What are your options?

Implications of becoming authorised
Requirements Common to all Applicants

Application Form
Approved Persons
Capital Resource Requirements

Training and Competence

Application Fees

Other Cost Implications
Annual FSA Fee
Financial Ombudsman’s Service (FOS) Levy
FOS Case Fee
Professional Indemnity Insurance PII

Reporting