The millions of people who take out insurance policies each year may not know it, but they now have improved cover against unforeseen events and being sold unsuitable products. As of Friday, the Financial Services Authority took over regulation of the general insurance market, including motor and home insurance and some travel and protection cover such as critical illness insurance.
Now more than 36,000 firms including insurers, brokers and intermediaries, as well as those who sell or advise on the sale of insurance alongside their main area of business such as vets or car dealers must meet new standards of professionalism and competence set by the City watchdog.
In practice, regulation should mean consumers receive clearer information about their policies through the introduction of the key facts logo on pre-sale documents.
Key facts documents must point out important policy information which may have previously been hidden in the small print.
This includes any significant exclusions in the policy, additional benefits, and whether it is compulsory for the consumer to buy cover.
Customers must also receive a suitability statement to check their adviser's recommendation. Aside from sales, standards have also been set for the fair and prompt handling of claims and consumers will be given a standard 14 days to cancel their policies.
New consumer protection includes the ability to seek redress with the Financial Ombudsman Service, if you have a complaint that cannot be resolved with the firm. You will also be able to claim compensation from the Financial Services Compensation Scheme, the UK's statutory fund of last resort, if your insurer goes bust.
In spite of regulation of the multi-billion pound industry being seen as much-needed by consumers groups, some people said this week that the new regime does not go far enough and could even leave consumers well worse off and criticism focused on the fact that regulation is not comprehensive.
Oddly, travel insurance is excluded when bought as part of a holiday package from a tour operator or travel agent but stand-alone policies, such as annual premium travel cover, is covered. Extended warranty insurance is not protected either if it is valued below €500 (£350) and is for less than five years. That rules out the thousands of policies sold each year for electrical goods. However, the extended warranties for motor vehicles are covered.
The FSA says the rules were set by the government, which had to follow rules laid down by the European Union. But this doesn't impress some.
“To allow certain firms to sell insurance outside of the regulatory regime, and therefore not using the key facts logo nor providing prescribed information will not assist consumers in the short or medium term,” says the British Insurance Brokers Association.
“In the short term, it is likely to lead to consumer confusion and almost certainly to consumer detriment.”
Another key area where regulation has been criticised for not making a real impact is in payment protection insurance, which pays regular bills such as credit cards if you are unable to work. Consumer groups and others say regulation won't stop many consumers from getting a raw deal in this highly-profitable market.
“While the adviser will have to explain why you need the cover (such as PPI) they still won't have to tell you that you are potentially paying five times more than you need to for this cover,” says Richard Mason, director of insuresupermarket.com, which compares insurance prices for web users.
“Unfortunately it will still not protect people against being ripped off by poor value premiums.”
Concerns have also been raised that different rules have been set for firms which are operating with temporary authorisation. About 1,000 firms who are awaiting full approval from the FSA fall into this category. Consumers will not have access to the FSCS until the firm is fully authorised.
The FSA says this is because the FSCS is a fund of last resort. It also doesn't expect many to be affected by the exclusion as it aims to have all interim applications assessed within 12 months. But, contrary to some reports, the watchdog has confirmed that customers of interim authorised firms will still be able to seek redress with the FOS.
Additionally, the watchdog has also had to fend off criticism of the handling of its guidance on key facts documents, the concept at the heart of helping consumers to get a better deal.
The key facts documents have been the source of much frustration for the mortgage industry since October last year when more than 7,000 firms became regulated by the FSA.
While some lenders limited their key facts summaries to a digestible three pages which the FSA says is ideal others have produced documents of up to 10 pages.
The FSA is working with the mortgage industry to improve its guidance on the documents, but it insists it doesn't see a repeat with general insurance.
“The nature of many insurance policies do no lend themselves to getting too long, compared with mortgages which can get complex,” says the FSA's Robin Gordon-Walker.
Despite this outlook, the FSA will have its work cut out as this week Norwich Union, the country's largest insurer, said its new compliant policy documents had increased in length to between six to 12 pages.
Norwich Union, like many other insurers, also estimated that the cost of its policies following regulation will rise by about £2.80 annually in line with official estimates from the FSA.
