There have been a number of issues raised over the past week or so that are worthy of your attention;
The first involves the on-going debate on the juristic representative changes, their ability to trade in their own name and more specifically their ability to continue to collect client premiums subject to them having an IGF. We attended a meeting last Monday at the FSB with a number of role players, mainly involved in the retail motor sector, where the implications of the recent changes were discussed. The promised feedback on the issues raised at the meeting was provided today/yesterday Monday the 19th and reads as follows;
“After due consideration of your input and the impact on the industry in terms of re-contracting and managing the large number of juristic reps we have decided to exempt the industry from compliance with the new requirement until 31 March 2015. We believe that this will give the industry adequate time to comply.
The formal exemption will be published before the end of May.
Further to the above we will also issue a guidance note to assist in interpretation – this guidance note will be published in June 2014”
We have clarified that “the industry” does refer to all FSP’s and not just the motor sector.
We have also been given confirmation that the promised guidance note will include guidance on such issues as;
Premium collection by the juristic representative – will this still be possible?
The agency granting process with entities such as cell captives
Co- branding i.e. the FSP and the juristic representative on one document/product – will this be allowed? This is of importance where the juristic representative has spent considerable time and money on branding and without their own licence going forward may lose this.
Can a juristic representative be the holder of a binder or outsource agreement if the services in question are deemed intermediary services? Based on the initial meeting this would appear not to be the case.
Once the guidance note has been issued we will interact with all affected clients and plan accordingly.
Whilst writing the two other issues that you should be aware of, although the first seems to have been well publicised already.;
Fees charged by insurers likely to be classified as an undesirable business practice:
The FSB has issued a notice to all insurers inviting their input on the FSB proposal to treat fees charged over and above premiums by insurers as an undesirable business practice. We have expected this ever since the Binder regulations prevented a UMA from charging a fee.
The document released refers to three aspects that are creating this impression;
1. That such practices are not traditional practices within by insurers.
2. That the perception by consumers of the price of insurance is being distorted
3. The actual premium that should be charged if all costs were included are being understated thus the ability of the regulator to assess true premiums is compromised.
The deadline for insurers to provide input on this proposal is 30th June 2014 but to be honest we see this as a process being followed as demanded by the Act’s concerned rather than a true exploratory process of the issue thus we see this as an inevitable change – it is just the effective date that is the unknown.
Whether the removal of such fees will actually benefit the consumer is the question to be asked. We saw with the removal of fees by UMA’s, that was also meant to benefit the consumer, being of little positive effect for them at all – they simply became premium or moved up the supply chain, which is partly why the insurer fee is now being looked at. If they do indeed become premium the consumer will see no benefit nor will they likely appreciate the difference as their monthly debit order amount will stay the same.
Intermediary services and the insurer:
We reported on this issue in our April Newsletter and at the time we were unsure as to what the intention was of a proposed removal of the exemption that allowed insurers not to licenced to provide an intermediary service – they need only be licenced for Advice, although not all insurers followed this.
It is now being reported, specifically in a recent Moonstone article, that;
“The proposed new definition now reads:
“intermediary service” means, subject to subsection (3)(b), any act other than the furnishing of advice, performed by a person [for or on behalf of a client or product supplier] –
(a) the result of which is that a client may enter into, offers to enter into or enters into any transaction in respect of a financial product [with a product supplier]; or
(b) with a view to –
(i) buying, selling or otherwise dealing in (whether on a discretionary or non-discretionary basis), managing, administering, keeping in safe custody, maintaining or servicing a financial product [purchased by a client from a product supplier or in which the client has invested];
(ii) collecting or accounting for premiums or other moneys payable by the client [to a product supplier] in respect of a financial product; or
(iii) receiving, submitting or processing the claims of a client in respect of a financial product [against a product supplier];”;
(The sections in bold are additions to the current definition, while the underlined phrase will be removed.)”
“The FAIS Act aims to regulate the furnishing of advice and rendering of intermediary services in respect of financial products, in the furtherance of consumer protection. The exclusion of product suppliers and their employees from the Act, to the extent they are not regulated elsewhere, could never have been intended as such an interpretation would defeat the purpose and objective of the Act.
This leads to the unequal treatment of persons performing the same activity e..g., an independent intermediary must comply with the Act and meet competency requirements when selling financial products, whilst employees of product suppliers performing the same activity do not have to meet such requirements”
Assuming the background is as Moonstone see it then the implications for insurers is huge and will demand a large influx of insurer staff into the FAIS system.