Regulation of the Insurance Market
Developments in the regulation of life insurance distribution aim at providing protection for consumers, who have sometimes suffered as a consequence of miss-selling of insurance policies. Consumer protection will be strengthened by more regulation in respect of the qualifications of financial advisers and the way in which insurance sales are made. As part of the development of the internal market within the EU, measures have already been taken to create the conditions for a functioning internal market.
The EU Insurance Mediation Directive 2002/92/EC was transposed into UK law on 14 December 2005. The objectives of the directive were to:
- establish an internal market for insurance mediation;
- provide for a regulatory framework;
- ensure a high level of professionalism of insurance intermediaries; and
- guarantee a high level of protection to customers.
Persons dealing with insurance transactions, those who offer advisory services and those who assist in the management or execution of insurance transactions in the event of a claim are all considered to be intermediaries under the directive.
Depolarization regulations which became effective in the UK in 2004 aimed at increasing the range of products available to consumers as well as making it easier for them to see the actual cost of advice. Depolarization made it possible for distribution channels to offer advice from the whole of the market, from a limited number of providers, or from a single provider. The FSA expected this to result in more choice for consumers. Tied advisers, who previously only offered advice on the products of a single provider, would be able if they wished to expand their range of products.
Advisers must provide the customers with documents relating to the insurance services provided and the cost of those services. These documents give consumers much clearer information earlier in the sales process about the type of advice and level of service being provided by the adviser. Consumers are also given a “menu" of commission rates, providing a benchmark showing the average cost of advice. Additionally under the rules those advisers who want to call themselves independent must offer consumers the option to pay for advice by a fee.