United Nations Climate Change
Our aim is to help our clients understand the potential opportunities and challenges that COP25 may have on their business.
In this week’s update, we report on a number of papers issued by the Financial Conduct Authority (FCA). The UK regulator has proposed remedies to improve competition in the Guaranteed Asset Protection (GAP) insurance market. The measures, if introduced, will affect insurers and distributors of add-on GAP insurance sold as part of a motor vehicle sale. The FCA has also issued the results of its thematic review into annuity sales. The report concludes that firms need to do more to improve annuities sales practices and introduces four annuities consumer outcomes. In addition, the FCA published the interim results of its retirement income market study which has found that competition is not working well in this market. Finally, the FCA is consulting on policy proposals to improve firms’ complaints handling including a new requirement to report and publish all complaints to the regulator.
The Norton Rose Fulbright insurance update is changing. In the New Year we will no longer be sending out our regular emails to an insurance only mailing list but will be adding our insurance content to the Regulation tomorrow blog. All our existing recipients can ensure that they receive content from the insurance team by signing up to receive the blog posts. This way you can determine exactly what content you receive and how often. You will also benefit from the breadth of the Regulation tomorrow blog which is a single portal for all regulatory matters across different jurisdictions.
Regulation tomorrow offers a convenient resource for those keeping track of the evolving and increasingly complex global financial services regulatory environment. It reports on financial services regulatory developments and provides insight and commentary across Australia, Canada, the UK and Europe and the United States. With topics ranging from banking and capital adequacy regulation, clearing and settlement, anti-money laundering, insurance, regulation and compliance, retail and wholesale conduct and securities regulation.
We have a leading reputation in the global market for advising on complex financial services regulatory matters, drawing on the strength of our financial services and insurance lawyers throughout Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia. With blog postings from our international team we ensure that you are on top of the latest developments.
To stay in the loop with insurance developments and insights from Norton Rose Fulbright please subscribe:
Remember we will no longer be sending out our regular content in the New Year so please sign up if you are interested in receiving blog posts.
On December 12, the Financial Conduct Authority (FCA) issued a consultation paper on the detail of the proposed add-on Guaranteed Asset Protection (GAP) insurance remedy. The FCA carried out a market study into general insurance add-ons, finding that:
The FCA proposed four remedies, one of which related specifically to GAP insurance. Most of the 1.3 million GAP insurance policies in force were sold as an add-on during the motor vehicle sales process. This consultation paper proposes specific rules to improve competition in the GAP insurance market. These are:
The deferred opt-in
The market study found that the main harm to competition in the GAP insurance market is the advantage held by distributors of motor vehicles. GAP insurance distributors benefit from a point-of-sale advantage and from customer inertia – 83 per cent of buyers of add-on GAP insurance did not consider other policies when purchasing compared to 9 per cent of standalone GAP insurance buyers. The FCA proposes a deferred opt-in meaning there is a pause in the add-on GAP insurance sales process known as the ‘deferral period’. When add-on GAP insurance is sold as part of buying a vehicle, distributors cannot introduce the product and conclude the sale on the same day. The deferral period would start when the customer is given certain prescribed pre-sale information and end four days after that information is provided.
The FCA proposes a variation to enable a confident customer to make the purchase sooner if they wish to do so. If the customer initiates contact, the distributor can conclude an add-on GAP insurance contract on the day after the start of the deferral period. Customers who contact the add-on distributor must give their agreement that they are aware of the longer deferral period but want to proceed with the sale anyway. The FCA would expect firms to monitor high-levels of customer-initiated completions of sales and warns that this variation should not be used to circumvent the primary rule.
Information to encourage shopping around
The second component of the remedy package is the provision of prescribed information to encourage customers to consider whether they need GAP insurance and encourage shopping around for the most appropriate product. The FCA proposes to require firms to provide specified information, some of which is in addition to the existing regulatory requirements in ICOBS 6.1.5. Provision of this information would trigger the start of the deferral period. Distributors must provide customers with the following information, as a minimum, in a clear, accurate and prominent manner in writing:
The deadline for comments on the remedy is March 13, 2015. The FCA intends to publish final rules in a Policy Statement by June 2015 with a view to the rules coming into force on September 1, 2015. These rules will impact any firm that distributes add-on GAP insurance in connection with motor vehicle sales, insurers that underwrite GAP insurance products and other intermediaries involved in the distribution of GAP insurance.
These requirements only apply to GAP insurance sold as an add-on as part of a motor vehicle sale. Standalone GAP insurance and GAP insurance sold alongside motor vehicle insurance, for example, are excluded from the scope of these proposals.
Interestingly, the FCA also cites the recent Supreme Court decision on commission disclosure in Plevin v Paragon Personal Finance. While it does not affect these proposals directly, the FCA notes that it is considering the issues raised by the judgment and suggests that firms do the same. For our analysis of Plevin please refer to our Insurance update - November 28, 2014.
For further information:
On December 11, the FCA published the results of a thematic review into annuities sales practices (TR14/20). The FCA found evidence that firms’ sales practices contributed to consumers not shopping around and switching when purchasing an annuity. The FCA found that sales practices may have led to consumers buying the wrong type of annuity and, in particular, not purchasing an enhanced annuity when they may have been eligible for one. As a result, some consumers may miss out on the opportunity of a higher income in retirement as a result of these sales failings. The FCA has also found examples of where the Association of British Insurers’ (ABI) Code of Conduct on Retirement Choices is not being applied.
The FCA is asking firms to do further work to determine if the findings of the thematic review are indicative of more widespread problems and consider if the issues raised in the review have led to poor consumer outcomes – in particular to discover whether customers with certain medical conditions or lifestyle factors have missed out on a higher retirement income. Importantly, the FCA states that it will not apply new standards retrospectively but will examine the period following the FSA’s thematic work undertaken in relation to Open Market Options in 2008.
As yet it is unclear whether any enforcement action will be taken as a result of poor conduct within individual firms. The FCA is now planning to work with firms in order to ensure that they improve annuities sales practices in accordance with the four FCA annuities consumer outcomes. The outcomes have been developed with regard to the risks to consumers in the market, FCA rules and principles in addition to the ABI Code of Conduct.
The four FCA annuities consumer outcomes are:
Outcome one: Consumers are actively encouraged (and not discouraged) to shop around, and can make informed decisions about how and when to buy annuities.
Outcome two: Consumers are provided with relevant and timely information about the potential benefits of any guaranteed annuity rate or risks of a market value reduction that exists in their existing pension contract.
Outcome three: Consumers are provided with appropriate and timely information about (a) the benefits of enhanced annuities and their potential eligibility; (b) an enhanced annuity being available on the open market (particularly, where their pension provider does not offer one); and (c) the potential for variation between different providers’ underwriting and its impact on the income offered.
Outcome four: Consumers are provided with appropriate information about the different annuity options available to them (joint v single, level v escalating, and various guaranteed periods) and the implications of selecting different annuity types.
The FCA will review the additional evidence gathered by firms and consider whether further action is needed.
For further information: TR14/20: Annuities sales practices
In addition to publishing the results of its thematic review, the FCA has also published the interim results of its retirement income market study. The FCA has found that competition is not working well in this market as consumers are missing opportunities to shop around and switch providers and are not therefore getting the best possible annuity.
The FCA is proposing five market remedies which seek to address the issues identified in the interim report. The objective of the remedies is to increase the usefulness of the information given to the customers not by providing yet more information, but providing better information that seeks to encourage shopping around and switching and tackling customer inertia.
The provisional remedies are as follows:
Interested parties are asked to provide comments on the study by January 30, 2015.
For further information:
Last month, the FCA published its thematic review into complaint handling involving 15 major retail firms and five trade bodies. The FCA has considered the findings of the review and is now consulting on a number of policy proposals in CP14/30 Improving complaints handling. The proposed changes to the complaints rules affect all FCA-regulated firms including insurers and intermediaries.
CP14/30 contains three policy proposals which are intended to improve the way complaints are identified, recorded and handled. The FCA is proposing to:
The regulator is also proposing measures to increase transparency around complaints data including a new ‘complaints return’ that firms are required to submit twice a year. The key elements of the FCA’s proposal are:
The consultation closes on March 13, 2015.
For further information:
IMO 2020 is almost upon us. Readers are well aware of the impending switch to 0.5 percent fuel mandated by Annex VI of MARPOL which will cause an anticipated drop in HSFO demand, the potential hazards of new untested LSFO blends, the concerns around scrubber operations, the debate over open loop versus closed loop, and the myriad of other risks associated with the impending regulatory change.