This snapshot, taken on 07/04/2010, shows web content selected for preservation by The National Archives. External links, forms and search boxes may not work in archived websites.
Newsroom & speeches
23 November 2006
1. Mr Chairman, I would like to thank the Committee for the opportunity to give evidence to this short inquiry into general insurance regulation; and, with your permission, I will start with a short statement to inform the Committee of a couple of matters that will be of interest.
2. The insurance industry plays a vital role in our economy and at the first meeting of the Chancellor's High-level group on financial services we agreed an industry-led review to promote market reforms in the wholesale insurance market. I can tell the Committee that joining Lord Levene to conduct this review and deliver wholesale market reform will be Grahame Millwater from Willis Re and Andrew Kendrick of Ace European Group.
3. Your focus today is the regulation of the selling of general insurance products. The overarching framework for regulating the sale of general insurance is set by the EU's Insurance Mediation Directive (IMD). The Committee will know that the FSA is responsible for making the detailed rules of the insurance regulatory regime, and that it is currently conducting an effectiveness review of general insurance regulation.
4. I understand the FSA review is likely to lead to a more principles-based regime and some deregulation for those products where market failure analysis and consumer research shows this to be appropriate.
5. The challenge is to strike the right regulatory balance between protecting consumers without inhibiting or stifling business innovation and adding to the cost for consumers.
6. This has been a particular concern for the freight forwarding sector, who believe they are unnecessarily subject to FSA regulation. Following clarification from the Commission on the scope of the Directive, and given that there is very little chance of consumer detriment in this area, we will remove these activities from the scope of FSA regulation. I will be consulting on this later in the year.
7. The need to strike the right balance also arises with travel insurance.
8. As the Committee will be aware, the selling of certain types of insurance can be exempt from the Insurance Mediation Directive if it meets certain conditions on the face of the Directive. Travel insurance sold along with a holiday and extended warranties under €500 are capable of falling within the scope of this exemption.
9. Following consultation, the Government announced on 5 June 2003 that travel insurance sold as part of a package would not be subject to regulation, as there was insufficient evidence of consumer detriment.
10. This means that currently:
a. products bought through an insurance broker or direct from an insurer are required to be regulated;
b. there is no such requirement for essentially identical products purchased as part of a package.
11. However, an undertaking was given by my predecessor to review the decision early in 2007. And in the recent years there have been growing concerns from consumer groups and sections of the industry that the market is not working as well as it could do.
12. For example, a recent Which? report found that only 35% of travel agents asked medical questions (compared to 81% of banks and insurers), 19% explained what the policy covered (compared to 81% of banks and insurers) and 0% explained what the policy did not cover (compared to 56% of banks and insurers).
13. It is clear that there may be an issue here, which raises questions about whether regulation and appropriate redress and complaints mechanisms should apply to this area. We need to get to the bottom of whether travel insurance sold with a holiday is being mis-sold.
14. So I announced in August that the Treasury would be conducting a review into whether travel insurance sold with a holiday should be subject to FSA regulation. My aim has been to stimulate a debate so we can make a decision based on evidence.
15. Today the Treasury is starting the next phase of the review by publishing a call for evidence and encouraging the providers, sellers and consumers of travel insurance to contribute to that debate.
16. Let me use the issue of coverage for the effects of terrorist incidents as an example. Insurance policies may:
a. Have no exclusions for conventional terrorism risk; or
b. Have a general exclusion for terrorism risks, which is disapplied for some benefits;
c. Have a general exclusion for terrorism risk without any exceptions.
17. According to the Association of British Insurers only around 50% of travel policies cover medical expenses in the event of a terrorist incident. Such policies provide emergency medical treatment, medical repatriation or repatriation of a body and expenses of a family member or friend acting as a carer. So around half of the 20m travel insurance policies that are sold every year are not providing guaranteed cover for such events The issue here is about both educating consumers to consider the cover they want when they are buying travel insurance and ensuring that consumers are properly informed.
18. So the Committee's current enquiry is particularly timely and I look forward to seeing the Committee's input into this debate.
