BIBA’s response to the HM Treasury Consultation on Simple Financial Products
25th March 2011
The British Insurance Association (BIBA) is the UK's leading general insurance organisation representing the interests of insurance brokers, intermediaries and their customers.
BIBA membership includes 1,700 regulated firms. Insurance brokers and intermediaries distribute nearly two-thirds of all UK general insurance. In 2007, insurance brokers and intermediaries generated £1.5 billion of invisible earnings and they introduce £22 billion of premium income into London's insurance market each year.
BIBA is the voice of the industry, advising members, the regulators, the Government, consumer bodies and other stakeholders on key insurance issues. BIBA provides unique schemes and facilities, technical advice, guidance on regulation and business support and is helping to raise, and maintain, industry standards. BIBA works closely with the Chartered Insurance Institute to provide training to those working in the industry and actively participates in helping the industry and its customers deal with some of the major issues of the day.
BIBA members provide professional advice to businesses and consumers, playing a key role in identification, measurement, management, control and transfer of risk. They negotiate appropriate insurance protection tailored to individual needs and operate to a very high standard of customer service with the aim of ensuring peace of mind, security, financial protection and the professional advice required.
Our response to the 19 questions are set out below:
Question 1: The Government would welcome general comments on the vision and objectives for a new regime of simple products.
This vision and objectives should be aimed at the uninsured, targeting the unprotected non insurance buyers who currently do not know how to access insurance and do not appreciate its benefits.
Most general insurance products have a market led minimum standard – home insurance would typically cover the specific perils of; fire, theft, lighting, explosion, flood, storm. Motor cover would include the minimum requirement of ‘the Road Traffic Act’. Travel cover includes five key areas: medical expenses, baggage, personal accident, cancellation and third party liability (TP). We do not believe there is a more simplified or cheaper product that is not already available in the very competitive UK market.
The most important issue is to help people access and understand cover and our answers to these 19 questions discuss this.
Question 2: Should this work be led by industry and consumer groups and not Government?
This work should be led by industry but in partnership with Government in producing consumer guides and encouraging better take up of products.
Question 3: How can industry and Government ensure a voluntary set of standards offers sufficient protection for consumers?
Strict Financial Services Authority regulations apply to the sales of insurance products. Therefore, BIBA do not believe any additional “voluntary set of standards” would offer any additional protection for consumers. The consumer is sufficiently protected with the existing system.
Question 4: Are there any reasons that simple products should have price caps or other standardised pricing features?
No, this would deter sellers from entering the market, reducing choice and competition.
Question 5: How could simple products be used as a benchmark or a comparator? Is there a case to support this with regulation, as with the RU64 rule?
There is already sufficient regulation to cater for this. It is more important that a customer can access suitable advice on the appropriateness of the policy he needs rather than compare products he may not understand.
Question 6: Are there any groups in particular that simple products should be targeting? If so what implications would this have for the development and promotion of simple products?
Simple products should be aimed at particular groups, which should be the financially disadvantaged who have never or infrequently purchase insurance products. It is currently the uninsured who must be the target group. The sale of Simple Financial Products could help tackle social inclusion and help those currently under protected communities with no contents insurance who suffered massive losses in the major floods.
Question 7: Is it practical or desirable to have a range of completely standardised products? Is standardisation more practical for some products than others?
It is important to avoid complete standardisation as this would stifle innovation. However, we do believe that certain perils should be included as a basic starting point for Simple Financial Products, e.g home contents insurance should cover the basic fire, flood, storm, theft, lighting and explosion.
We would not recommend however that Glasgow housing authority should necessarily offer exactly the same cover in the insurance with rent for contents insurance as Warwick housing authority due to a variety of differing demographics. Also competition between brokers will lead to a healthier market.
Question 8: Beyond standardisation what other measures could be used to help improve consumer understanding of product features?
Insurance brokers as a sector in Financial Services are the most suitable solution to help customers access appropriate insurance, indentifying their demands and needs.
BIBA is recognised as a dedicated signposting solution in the Government Equalities Office consultation paper: Banning Age Discrimination in services, public functions and associations, and we are able to help improve access to insurance for the socially disadvantaged by helping them seek insurance protection through our ‘Find a Broker’ helpline or website. BIBA have a national network of over 2,400 offices across the UK within our membership. We also have specialist insurance brokers who will insure the many hundreds of thousands of tenants for local authorities, helping them arrange and generate schemes for tenants around the UK.
BIBA is also prepared to help write guides for consumers (as we have recently done with a guide on motor insurance for the Consumer Council for Northern Ireland).
Question 9: Should someone police the standardisation of products?
The FSA regulate the insurance industry and we do NOT believe further regulation or intervention is required. The issue that must be tackled is one of education, signposting and access to insurance.
Question 10: How could the simple products brand be developed?
We do not believe a specific Simple Products brand is required, we believe the underlying cause for this consultation is not the product but the education and access to insurance by those who are not currently buying insurance protection. The route to market needs to be made as easy as possible. We are sure that consumer bodies like the Citizens Advice Bureau, CFEB and Which? have a role to play as do the key bodies who are the obvious route to market for the uninsured – housing authorities. We do not think the brand is relevant here, it is more important that customers are provided with basic cover by their housing authority.
This can be easily arranged under a tenants contents insurance with a rent scheme in partnership between an insurance broker and a local authority e.g Aon Insurance Brokers for Luton Borough Council.
Question 11: How can consumers be reassured that these products meet the required standards?
FSA regulations cover issues of suitability and the basic core requirement of a customer would be catered for under the existing regime.
Question 12: Do you agree that deposit savings products and protection products should be the initial areas of focus? Are there significant features or product characteristics in these categories that would lend themselves to standardisation?
Question 13: Do you have views on how simple financial products could be developed to benefit particular age-groups or sections of the market?
It is the financially disadvantaged that are the most vulnerable and in need. Please see our answer to question 6.
Question 14: The Government would welcome any evidence about costs and benefits of developing a new regime of simple products, preferably drawing on experience of implementing previous simple products initiatives or introducing new products lines.
The ultra competitive nature of the UK insurance market and the growth in popularity of comparison websites has already led to the commoditisation of personal lines general insurance.
Therefore we do not believe there is rational for Government intervention in the market.
In point 2.4 of the consultation it discusses the FSA 2007 survey stating that too many people found insurance complicated and almost half did not know if they were getting a good deal.
BIBA believe much of the reasoning behind this is the move from many buyers to shop on-line without receiving the guidance they need from an insurance broker.
BIBA call on HM Treasury, the CFEB and the FSA to help signpost people to insurance brokers who can and will help these consumers to understand and buy a suitable policy.
This would also help with point 2.10 that many customers may not understand that choosing an insurance product based soley on price may not offer them the cover they expect or need.
BIBA suggest a meeting between HM Treasury, the FSA, money made clear, CFEB and BIBA to create an action plan as to how to better promote access to insurance and advice.
Question 15. What would be the benefits and disadvantages of linking simple products to CFEB’s national financial advice service, including within the financial health check.
The CFEB should help work with local authority housing organisations and BIBA to help consumers access cover. If CFEB were to directly promote Simple Financial products at the expense of others or offer advice this would distort the market and may be inappropriate in many situations. We agree it is important that CFEB guidance give consumers a steer on the basic protections a consumer may need but they cannot be seen as offering the detailed professional advice that customers need from professional insurance brokers.
Question 16: Should the new regime of simple products be linked to regulated advice? If so, how might this work?
Advice is already regulated, so a distinction must be made between general guidance and actual specific advice.
Question 17: The Government would welcome evidence on the role of savings stakeholder products in the market and the effects of removing or keeping them.
Question 18: The Government would welcome evidence on how the basic advice regime is working, if is it understood by consumers and profitable for providers.
Basic advice is a key element of the insurance broking sector. BIBA believe our regime is working successfully, contributing over 1% of UK gross domestic product with little risk to customers or Government.
Question 19: The Government would welcome views on any other wider issues that need to be considered alongside simple products, including the impact on the wider market.
The Simple Products Initiative should be aimed at the uninsured sector of the market and to those with only a limited understanding of financial products.
This is why BIBA believe social housing is a key element of a wider issue that needs to be considered alongside simple products.
Thank you for taking the time to consider our response. If you have any further queries please contact Graeme Trudgill, BIBA’s Head of Corporate Affairs on 020 7397 0218 or on email@example.com or Peter Staddon, Head of Technical Services for further information on 0207 397 0204 or firstname.lastname@example.org,
Direct Tel: 020 7397 0201
Direct Fax: 020 7626 9676