Intermediary membership of the General Insurance Standards Council (GISC) has been voluntary since its launch in July 2000. But the GISC says it could get the go-ahead to introduce what it describes as “the glue of compulsion” as early as next month.
The new regulator of private medical insurance (PMI) is hoping the Office of Fair Trading (OFT) decides to give it exemption from the Competition Act 1998 – allowing it to restrict the conduct of general insurance products to GISC members.
More specifically, it hopes to obtain permission to implement its rule F42. Under this, all insurers and wholesalers who are GISC members can only deal with intermediaries who are also members. If exemption is granted the measures will be introduced following a brief transition period.
Although GISC-registered intermediaries will still be able to deal with insurers who are not GISC-registered, this concession is an almost total irrelevance.
All members of the Association of British Insurers (ABI) and most Lloyd’s service companies are expected to join the GISC, meaning that intermediaries who are unable to deal with them are effectively waving goodbye to their livelihoods.
The GISC’s Private Customer Code (see box) sets the minimum standards of good practice which all members must follow when they deal with consumers buying general insurance. Accountants Ernst & Young and PricewaterhouseCoopers (PwC) will monitor members so they comply with the standards.
GISC spokesperson Catherine Nicoll says: “Although we hope very much the OFT will give us clearance, it may possibly wish us to reconsider minor details of our procedures and, if so, we would have to oblige. This could mean that things drag on a bit longer.
“Once clearance has been obtained, I expect the board to pause a little to take stock of the general mood of the industry, reviewing the membership profile and looking to see how membership has been building up during the voluntary stage. The board needs to be confident that the industry as a whole is ready for the next stage. I have no reason to suppose it won’t be ready by the early summer, if we have OFT clearance in February or March.
“A transition period will then be essential because introducing compulsion immediately would affect people’s commercial circumstances. But I have no idea how long this will last and whether there will be just one period or different periods for different parts of the industry.”
The GISC is the industry’s response to an invitation from the government in July 1998 to establish a self-regulatory framework for the sales of general insurance. It is regarded as a highly positive development by most professionals involved with PMI.
Failure to self-regulate effectively would inevitably result in the government insisting on more restrictive and expensive statutory regulation.
Furthermore, the GISC is prepared to acknowledge that PMI is unusually complex in comparison to other general insurance products. As a result, PMI will have its own special code of practice incorporated as a separate section in the rule book and monitored by PwC.
This section, apart from a few minor modifications, will essentially be the draft code drawn up by the industry PMI Panel to supplement the ABI Code in the wake of OFT criticism.
The aim is to produce the final version of this additional code within the first half of this year. But the exact timing will depend on what happens during the consultation period and this will follow approval of the basic principles by the GISC board, which should be obtained this month.
Criticisms of the GISC are few and far between, although Mike Hall, managing director of Standard Life Healthcare, is unusual in expressing reservations about its self-regulatory nature.
He says: “I support the GISC 100 per cent and feel it will deliver everything that statutory regulation would do. But I would have gone for statutory regulation, despite the potentially greater cost.
“Self-regulation may fail to provide the public with the psychological reassurance they are looking for and which the insurance industry, generally, has failed to deliver.”
The GISC’s decision to allow networks to join on behalf of their individual members has also attracted some criticism.
Its stance results primarily from not wanting to interfere with existing business practices and not from considerations towards ensuring that membership is affordable. The costs of network membership, which currently remain unknown, are likely to work out cheaper than if all network members joined individually. But individual membership, which starts at £200, is hardly onerous.
Contrary to popular belief, membership costs will not in most cases be bumped up by the need to take out additional professional indemnity (PI) insurance. Members do not need additional PI if they are already regulated by the Personal Investment Authority or any other professional body approved by the GISC.
Some would like the GISC to refuse to allow networks to sell PMI at all – but it is not considering this as an option.
Roland Burnett, the client manager at York-based specialist medical insurance brokers Prestige Healthcare, says: “The networks will all claim to exercise rigorous internal monitoring.
“However, we have very grave concerns that they won’t achieve the same standards for their members as will be achieved by individual GISC members who are directly monitored by PwC.”
The GISC emphasises, however, that networks must state in their applications what classes of business they want to sell and will only be given permission to sell those in which they are considered to be competent.
And competence to sell PMI, in particular, will be compulsory.