It maybe April Fool’s day but the date when the Association of British Insurers’ (ABI) code is to be withdrawn is no laughing matter.
The Association of Medical Insurance Intermediaries (AMII) has expressed serious concerns about a potential gap in consumer protection from 1 April. For this reason, it has written to private medical insurance (PMI) providers, asking them to deal only with intermediaries who have signed up to the new regulator of general insurance, the General Insurance Standards Council (GISC), from 1 April.
Following the withdrawal of the ABI code, which currently regulates the sales of PMI, the GISC will be operating a transitional period from 1 April in which intermediaries will be given time to sign up to the new regime. But the AMII does not think this is a suitable strategy for the PMI industry.
AMII executive committee member Roland Burnett says: “We cannot have our industry unregulated from 1 April. The number one priority has to be consumer protection. The issue now is one of a big bang for regulation of the PMI industry on 1 April.”
Despite such strong words, most PMI insurers are reluctant to take such action for various reasons – including a pending appeal to the Office of Fair Trading (OFT) against the GISC rules.
Since its launch in July 2000, membership of the GISC has been voluntary and, so far, there are only around 1,000 members. However, a recent ruling will give the regulator the teeth it needs to make membership compulsory.
The OFT recently decided that the rules of the GISC do not infringe competition law. This decision clears the way for the GISC to introduce its full regime – including rule F42 which effectively makes membership compulsory.
Rule F42 requires GISC members (which include insurers) to deal, in the UK, only with intermediaries who are operating under the GISC regime. The consequence is that anybody wishing to sell the products of a GISC insurer must comply with the GISC rules. Rule F42 is necessary because there is no statutory requirement for GISC membership.
CMS Cameron McKenna is the law firm for GISC, and has advised on a wide range of issues relating to GISC’s establishment, rules and ongoing operation and on the notification to the OFT. Partner Nick Paul says: “The key contentious issue was that, on joining GISC, all members agree to be bound by the Rules, including the rule which will prohibit members from accepting business from non-GISC intermediaries in the UK. OFT clearance provides the industry with the necessary comfort to launch the full GISC regime with absolute confidence.”
The OFT concluded that the GISC rules were transparent, non-discriminatory and based on objective standards. The Director General of Fair Trading John Vickers says: “When people buy general insurance they need to have confidence in those selling the products. Self-regulation can protect consumers and give this confidence, but it must not be allowed to restrict or distort competition and drive up prices. I am satisfied that the GISC’s rules are unlikely to have this adverse effect.”
But now the GISC has the green light from the OFT, it has to decide when to implement its rules.
According to the GISC head of communications Catherine Nicholl, the board is expecting to make a decision the second week in March to adopt and publish a transitional framework or timetable.
She says: “It is not in our thinking that the GISC should distinguish between different sectors. We don’t want different parts of the market coming in at different stages.
“The great majority of the market will be coming in midsummer or early autumn. Stragglers might have until the end of the year.
“Logistically, we don’t want everyone joining within one week.”
It is this transitional period which is causing the AMII concern. It believes if intermediaries are allowed to sell PMI unregulated, consumers will suffer.
Nicholl agrees with AMII that PMI is a complex industry area with lots of different products and needs to be sold responsibly.
She says: “We won’t be requiring anything particular of medical insurers, but we’d be quite comfortable if they wanted to go ahead to impose it all by 1 April to avoid any gap. That’s probably quite sensible.”
With such an endorsement from the GISC in the public domain, it does seem sensible for PMI insurers to take action and enforce rule F42 in advance of the GISC’s transitional period.
In fact, one insurer has already done just that. Western Provident Association (WPA) has written to its intermediaries saying that from 1 April it will only recognise GISC-member intermediaries. The letter included a form which intermediaries must complete and return to WPA to confirm they are GISC members. In two days, WPA received 250 positive responses from intermediaries. WPA communications director David Ashdown says: “It is important for customers to have confidence in the system. I think other insurers will follow our lead.”
PPP healthcare has gone some way towards enforcing rule F42, by saying it will only take on new intermediaries who are GISC members. But PPP healthcare channel development manager Nye Jones says: “In terms of existing intermediaries we will wait and see how the transitional phase turns out.”
Other insurers say they are delaying a decision in the light of the current appeal against the OFT’s ruling by Institute of Insurance Brokers (IIB) director general Andrew Paddick.
Paddick has written to insurers asking them not to pressure intermediaries into joining the GISC until the result of his appeal is known. He has also asked insurers to confirm in writing that they will not do this.
Bupa technical support manager Richard Galley says: “We fully support the GISC rulebook, but we have to wait until the latest appeal has gone through. We wouldn’t be able to enforce rule 42 until the current uncertainty is resolved.”
But Nicholl says: “There is nothing to stop the GISC going straight on ahead and implementing the code. Various people gave evidence to the OFT, including the IIB. One can only conclude that the OFT was not swayed by those arguments. It isn’t as if the IIB didn’t make its case quite vigorously in the first place.”
Of course, the alternative to the enforcement of rule F42 from 1 April is the extension of the ABI code. On this subject, Nicholl says: “As yet, the ABI has not made a decision. It is very probable that it will make an announcement at the end of March. I think in all probability the code maybe extended a bit.”
It is clear that the coming month must see either an extension to the ABI code or a decision from PMI insurers to bite the bullet and enforce rule F42.
Insurers can talk all they like about consumer protection but if they leave a regulatory gap, they will be blushing like an April Fool when consumer groups start to complain.