The pressure is on for the GISC. If it fails in its bid to convince the industry to join it voluntarily as part of a system of self regulation, insurers may face a future overshadowed by the threat of statutory regulation.
Health Insurance: Byway of introduction, can you explain how and why the GISC came into being?
The catalyst was the debate surrounding the Financial Services and Markets Bill. The government decided general insurance would not come under Financial Services Authority (FSA) jurisdiction because it is not a particularly political subject. But the industry recognised it needed formal regulation to replace the fragmented systems then in place from Lloyd’s regulation, to the Insurance Brokers Registration Act, to the Association of British Insurers’ (ABI) codes of practice – and the formation of the GISC was an attempt to create such a uniform framework.
The GISC is an independent, non-statutory organisation set up to regulate the sales, advisory and service standards of member insurers and intermediaries (defined as “anyone engaging in general insurance activities who is not an insurer, an appointed agent or an introducer”). Its main purpose is to ensure that general insurance customers receive fair treatment.
After a long consultation period, we issued the GISC rulebook in July of this year. We have tried to avoid FSA-style regulation in this document and keep it at an accessible `code’ level. We recognise that the general insurance industry is extremely diverse and a coherent regulatory system will only work if it reflects good business practices – which I believe our rulebook does.
HI: One criticism levelled against the GISC is that, for a consumer organisation, most of the board come from the insurance industry. How do you respond to that?
While only three out of 17 board members – Baroness Dean, Oonagh McDonald and myself – are what you might call public interest members, it is not fair to say that the insurance practitioners are only there to represent their own interests. Consumer and industry interests are not that clearly segmented, and the practitioners wouldn’t be involved in the GISC if they had no interest in consumer protection.
That said, we recognise public accountability is important if the GISC is to work and are currently reviewing governance issues. This might lead to more public interest members on the board but it is unlikely there will ever be more than perhaps four.
HI: Since the official launch in July, around 470 organisations have joined, and you expect to have 1,000 members by the end of the year. Are you pleased with the industry’s early response to the GISC?
Most of the big insurance players have already joined up, and I’d certainly be pleased if the 1,000 members we expect by the year-end account for around 85 per cent of industry business.
It’s important to remember membership is still voluntary, and, although we estimate there are around 30,000 eligible bodies, many of those may not join until GISC members are no longer allowed to deal with non-members – which, subject to Office of Fair Trading (OFT) approval, should begin next March.
HI: How do you feel the health insurance industry in particular has responded to the GISC?
Very positively. We’ve already built up a good relationship with major insurers and intermediaries, and have good links with the Association of Medical Insurance Intermediaries in particular. Many of its members were among the first wave of intermediaries to join the GISC.
HI: What are you doing to promote the GISC and how would you convince insurers and intermediaries that it is in their best interests to join up?
We are certainly promoting the GISC in the consumer environment to such an extent that, sooner rather than later, we hope customers will ask insurers and intermediaries whether they are GISC members and go elsewhere if not.
As for the benefits of GISC membership, we’re quite happy for insurers and intermediaries to use it for business purposes.
We’re keen for people to display their membership as a badge of respectability and excellence to show customers that they adhere to certain consumer protection standards.
HI: Now you have published your rulebook, is it set in stone for the foreseeable future?
We’re certainly not so arrogant as to assume the rulebook is perfect, and as part of the GISC’s contract with its members, the rules are very much evolutionary, in nature and will inevitably develop with regulatory experience.
HI: Some intermediaries, primarily in health insurance, have asked for tighter definitions of terms such as tied agent and independent intermediary. Is this something you will pursue?
That is once again a question of experience: if we find our current definitions are so loose that they defy effective operation, then we will certainly have to look at them again.
HI: Are you afraid that voluntary membership might mean the GISC fails to get off on the best possible footing?
It’s certainly a risk-but on the evidence so far, most of the significant players in the industry are coming forward to join by choice. If by next March – when, I hope, the OFT will pass our rule – many organisations have still not joined, we might have to accept our standards fail to reflect good business practices or put an unreasonable burden on members, but I don’t think that will be the case.
If I had to persuade eligible organisations why they should join the GISC, I would say that regulation is not something that is optional. GISC membership can give you the opportunity to participate in the development of a regulatory system appropriate to the industry, which is something people should not let pass.
HI: Intermediaries often express concern that they have nowhere to turn if they fall out with an insurer – a role which many saw the GISC fulfilling. But the GISC has said it will only act on consumer complaints. Could this stance change in the future?
That’s actually one thing I don’t see changing. We are a consumer protection organisation and, while we do recognise intermediaries’ concerns, we just don’t see that kind of dispute as our business. The only circumstances under which we might intervene are if a dispute had any impact on consumer protection.
HI: Some insurance products, such as critical illness, long term care and income protection, fall outside of both the GISC’s general insurance remit and FSA regulation – leading to fears they could fall through the net. Might GISC extend its scope to cover these?
It is unsatisfactory that such consumer sensitive products currently fall outside the regulatory net. And if the FSA is unwilling to deal with them, consumer protection certainly needs to come from somewhere.
These products are currently covered by ABI codes and it’s a huge step for the GISC to say it will step in to regulate everything left over when the ABI withdraws these next year. However, there is a certain logic to our regulating this type of protection as we already cover medical insurance and I will certainly be talking to the FSA about this before the end of the year.
HI: If, for whatever reason, the GISC fails to impose self regulation on the general insurance industry, the only viable option seems to be statutory regulation under the FSA, something few people in the industry want to see. Can you afford to fail?
CW: I really don’t think statutory regulation of general insurance is in the government’s mind, but if the GISC does fail, then of course it must be a possibility. The industry certainly cannot be left unregulated.
The government doesn’t want statutory regulation because general insurance isn’t a political issue. There would also be concerns over putting such a burden on the just emerging FSA – there are 30,000 general insurance organisations that need regulating, which is an absolutely huge task.
HI: One of the GISC’s most controversial moves, which has outraged certain sections of the industry, is its rule F42, which means, in effect, that GISC members will not be allowed to do business with non-members. What is the motivation behind this?
Despite what might have been said in the past, we admit this move is tantamount to making GISC membership compulsory for intermediaries, if not for insurers. Insurers could stay outside the GISC if they so wish, but intermediaries will have to join if they want agencies with GISC-member providers.
For us, this rule, currently under review by the OFT under the Competition Act, will be the glue that binds this self-regulatory framework together. It will mean the practical empowerment of the regime: every customer will be able to expect the same treatment from a high street broker, a major insurance provider, or just when buying travel insurance from a travel agent.
HI: As you said, the OFT is currently reviewing this rule with regard to the Competition Act. Why are you so confident that it will rule in your favour?
If you look at the GISC rulebook, I think you can see in there all that is necessary for modern consumer protection, from training and standards to behavioural codes. The OFT needs to be persuaded that the balance is more towards the good side of consumer protection than the bad side of anti-competitiveness.
Saying that, if the OFT does rule against us, we will certainly go back and satisfy any reservation it might have, but if you look, it really is all there in the customer’s favour.