March 2007

ICOB review

On 21 March 2007 FSA published an interim report of their review of the conduct of business requirements for general insurance sales. The report is based principally on research work into market failure in this market. It leads to classification of non-investment products into two main classes: personal protection products (such as PPI and Critical Illness cover), where there are judged to be material risks of consumer detriment, and other general insurance products (household, motor) where markets are judged to work reasonably well with relatively less scope for consumer detriment. One particular finding in relation to the ICOB regime is that consumers make little use of the written information which the FSA require firms to give consumers when purchasing such other general insurance products.

In the light of these findings FSA are considering removing most of the ICOB rules that go beyond the minimum requirements of the Insurance Mediation Directive and the Distance Marketing Directive, supplemented by some specific measures to help ensure customers for personal protection products receive certain key messages on the nature and sale of the product in order to secure better outcomes. The detail is still under consideration: a Consultation Paper is planned for June 2007, with a view to any rule changes being made by the end of the year.

Developments along these lines seem likely to help with some of the practical problems posed by some of the detailed requirements of ICOB. However the FSA "do not envisage a reduction in consumer protection or a relaxation in the standards we expect from firms". As with more Principles-based regulation generally, there is greater flexibility about how the desired consumer and regulatory outcomes may be achieved, but this comes with a responsibility for senior management to focus on the outcomes and to ensure that the appropriate systems and controls are in place to deliver them. We await the more detailed proposals with interest.