Today sees fairly substantial reports that any future Conservative administration would abolish the Financial Services Authority as it stands in its current form. Is this a good thing or a bad thing for consumers and what impact will it have on your home insurance providers?
We’ll explore a few areas here on the blog prior to the release of all the devilish details tomorrow. Shadow Chancellor, George Osborne, is said to be mulling over carving up what he described as a “failed” architecture for financial services regulation in the UK.
Out of the frying pan?
Clearly, this dramatic news is the product of the fabled “Credit Crunch” of 2008, where the banks got it a little bit wrong with their product creation and risk management. Does the UK insurance industry really need another change though? The FSA in its current leviathan form was only truly incepted in 2001, it may be a little too soon to go about changing it all again. The sheer scale of the FSA’s impact on insurance culture should not be underestimated.
From an insurance retailer perspective it is not due to any adverse increases in insurance premiums or poor industry claims records that this change approaches. Our sector has been strongly regulated for sometime and despite ups and downs, improvements for consumers are being made. The sector is focused upon consumer demands and needs and everything we do here at insurance4everyone has one eye on the impact of compliance with regulation.
What we really need to know from the Tories, is how exactly the insurance regulation element would work. A lot is written about the Bank of England gaining some powers, but I'm sure that Mr King and his associates probably do not wish to be regulating insurance as well.
Clearly there would be few in the industry itself that would affirm their belief in a softer hand with a drizzle of common sense for UK insurance regulation. FSA rules and policy stances can be somewhat labourious to decode and are often based on a reactive stances, rather than definitive “yes or no” answers.
Consumer benefits galore or costs pressures…
At insurance4everyone, we are in full support of a system that helps consumers understand products, get a fair deal and promotes the value of the products available. Any changes that future governments make to the current regime should have the correct balance between moral and measurable consumer benefit.
There will be members of the industry that have experienced increases in costs due to FSA prescribed rules and interventions but caution must be in our minds. Being a member of the FSA costs any insurance entity money and obeying the rules and keeping a watchful eye on maintaining these standards requires resources.
Thus any change in the regulator has the potential to put more cost pressures on your insurance retailers if the regulatory burden increases. There are so many mediums for us to meet consumers, that the amendment of assets could be highly prohibitive in terms of cost. We are taking about copy changes to websites, stationary and advertising. For all of us.
The worst case scenario is that these costs get universally moved onto the insurance retailers pricing and underwriting policies.
In addition, there might be a concern that a “new” entity employs a more headline strategy to find its footing, making sweeping changes or changes that mark a stamping of its new found authority. We do not need change for the sake of change. A higher compliance burden would affect consumers in a more direct manner, the most poignant of these issues being the use of aggregator sites and the regulatory requirements they face in the future.
Were the consumer watchdog to crack down on unrealistic and unsustainable client acquisition practices that some of the major brands are currently running, it might be a good thing for punters in the long term.
Consumer understanding still needs promotion:
We regard consumer knowledge as one of the most critical areas of modern insurance retailing. With the marginalisation of the insurance broker tradition for small business, consumers have to think and compare with far more self reliance.
In terms of the FSA’s remit towards insurance, were the Tories to win the next general election and reform it as publicised, the focus would need to be on ensuring that our consumers are being supported by a body that continues to advise and educate them on the complexity of the products they buy. We are obliged to follow directives laid out by our membership to the EU, so how much latitude is there for change anyway?
It is also arguable that few consumers than one might hope really understood the retail insurance role and responsibilities of the FSA? If you were a regular visitor to http://www.moneymadeclear.fsa.gov.uk/ then you are a tick in the FSA’s review reports, I fear however that you would be in the minority.
A new FSA- let’s talk about it first..
Let’s ensure that a new regulator is what’s best for all financial services industries and the respective consumers and businesses in each sector. The regulator has a huge mandate and stripping these pieces out threatens to create competing and conflicting government departments.
If the Bank of England regulates insurance pricing and a consumer watching regulates the sale- what happens if they both disagree perpetually? Chaos and confusion, that's what would happen. In a sector where consumers are already less confident in their understanding of the important products available to manage the risks of life, many instead relyon personal experience and their peers.
The last thing that consumers need is retailers facing ever changing compliance costs and yet more diluted and confusing protocols and rights. What consumers need is stability in product delivery and pricing from an industry that continues to put their needs first. We will continue to focus on our customer service, because its something that sets us apart.
Whether or not the regulator does change in a couple of years, our advice would be as always, read your wordings and policy documents and if you don’t understand areas of it- feel free to call us and we will talk you through the nitty gritty!
Chat to your friends and colleagues about their insurance purchasing habits, it is a product that we all buy (i even have home insurance don't you know!), so get the conversation going.
As a consumer, it might be worth thinking about what kind of regulation you want for you financial services, does one size fit all?
James*
Marketing & Branding Team
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