The prospect of one regulatory body for the general insurance industry alarmed many when it was first proposed in 1998. But over the last three years the General Insurance Standards Council (GISC) has succeeded in winning support from insurance companies and intermediaries alike, and it seemed certain that, by the beginning of 2002, it would be fully operational.
But, with a decision being awaited from the Competition Commission regarding a number of appeals against its introduction, its future now seems much less certain.
The industry is particularly disappointed with this uncertainty. Roland Burnett, the chairman of the Association of Medical Insurance Intermediaries (AMII) and an intermediary with York-based Prestige Healthcare, describes the continuing delay as frustrating.
Similarly, William M Mercer’s senior consultant of health and group practice, Adam Thomson, stresses how important it was to get the GISC up and running.
He says: “The adoption of standards in the industry is something that has been long awaited. It would help eradicate some of the inconsistencies in the market.”
Back in March this year everything appeared to be running smoothly. The GISC had received clearance under the Competition Act 1998 from the Director General of Fair Trading (DGFT) and a timetable for implementation of full GISC regulation had been announced.
This stated that, from September 2001, members would only be able to deal with intermediaries who were also members or in the process of obtaining membership. This transition period would end on 31 December 2001, after which members could only transact business with registered intermediaries.
This timetable was in place for some time and members of the industry were fairly confident of a smooth shift into the new regulatory environment.
GISC head of communications Catherine Nicoll says: “We’ve already got more than 4,500 members and the feedback we’ve received suggested that although some found regulation distasteful initially, there is now confidence that it would be a good thing for the industry.“
But it was not to be quite so straightforward. The Association of British Travel Agents (ABTA) and the Institute of Insurance Brokers (IIB) both lodged appeals with the DGFT. In May this year these were rejected, with the DGFT stating there was no reason to alter his original decision.
But neither ABTA nor the IIB was happy with this ruling and they decided to put their appeals before the Competition Commission Appeal Tribunal.
Initially this seemed unlikely to affect the implementation timetable. But when it became apparent the decision wouldn’t be available until mid-August, the GISC was compelled to revise its schedule, pushing back the start of the transitional period to 15 October, but maintaining the end of the year as its full implementation date.
Then, towards the end of July, when it discovered a decision was not expected until the end of August it also decided to postpone the December deadline for full implementation.
Nicoll explains: “We felt it sensible to postpone the proposed dates as we want to give our members sufficient time to make the necessary arrangements before the start of any transition period.”
This has been met with frustration from intermediaries who have already adapted their businesses to comply with the new code. William M Mercer, which has its own code of professional conduct, had dedicated some of its resources to ensure the new system would be successful.
Thomson says: “We think the GISC code complements our own one but we’ve reviewed and audited our own business to ensure it’s absolutely compliant.”
The AMII has also fully supported the GISC from the beginning and, as a trade body, has made being a member of the GISC one of the conditions for joining.
Because it has insisted on this from an early stage, many of its members have already experienced some of the new aspects of the GISC’s code, including compliance visits from PricewaterhouseCoopers.
For anyone previously under the Association of British Insurers’ (ABI) code, these visits are much more thorough than anything they would have experienced before.
And unlike the ABI code, which was solely concerned with the sales process, the GISC remit is much wider, bringing in not only sales but also the advisory and servicing elements of the process.
Burnett received his visit earlier this year. He describes what happened: “The visit took roughly five hours, four of which the monitor spent with me, discussing every aspect of the sales, advisory and servicing processes. I had to provide evidence that everything was in order. He also spent an hour with my staff, checking everything was compliant. It was very thorough and comprehensive.”
Visits are followed up with reports, indicating areas where improvement is required.
Burnett believes this type of constructive feedback is vital to raise standards across the industry. He explains: “GISC members who’ve read the rule book will have made their own interpretations of how it fits their business.
“What they need now is for a skilled person to come round and, in effect, take a photograph of how the business is operating in relation to the rule book. It is a much more formal way of being monitored but I certainly feel it’s something we’ve needed for a long time.”
Burnett has also found the GISC very open to discussion, as he discovered when he approached it with some of the issues AMII members had raised. “The rule book is very much ‘one size fits all’ but PMI has some quirks that are peculiar to itself,” he says.
In particular, AMII members were concerned about the rule that stated members had to confirm cover with a client when insurance was taken out. Unlike other insurance products where this is possible, with PMI it is really only the insurer who can make this call.
“We needed to get clarification on this point,” says Burnett. “If we were to have abided by this rule we could have fallen foul of our professional indemnity cover. We found the GISC very receptive to our comments: it is definitely a listening regulator.”
But although it has won over large sections of the industry, the new environment the GISC would create is likely to mean change. Predictions for the sector suggest a huge amount of upheaval is on the horizon.
“I think there may be rationalisation in the market,” says Burnett. “There may be fewer healthcare intermediaries as some of them, particularly the sole traders, will find the new regime more drastic in terms of costs and the work involved in proving compliance. Some IFAs will also recognise the new requirements and decide that advising on PMI just isn’t worth it anymore.”
Registration fees for the GISC and data protection, professional indemnity insurance and a more prescribed training requirement will all push up the cost of being an insurance intermediary.
And with more rigorous monitoring there will be an increased workload. Any business for which PMI or insurance is not a core product will be caused to question whether it should remain in the market.
This fallout has already been considered by AMII, which is investigating ways it can develop relationships between its members and anyone who will no longer be able to sell PMI.
“If an IFA can pass on a client needing PMI advice to a specialist intermediary they will be giving a much better service than if the client has to make their own choice and buy direct,” says Burnett.
Insurers are also looking at how they can assist advisers who have sold some PMI in the past but may decide not to be part of the GISC.
Norwich Union Healthcare was ready to announce an initiative where it would allow IFAs to pass on leads to its salesforce without losing the commission on the sale. But with the suspension of the GISC implementation timetable, this type of service has become unnecessary.
But PPP healthcare product and channel development manager Nye Jones is not sure IFAs will welcome this approach. “For many IFAs this is a very different way of managing clients as it removes the face-to-face advice element,” he says. “And with commission streams being cut in some areas of financial services, getting into the healthcare market may actually be a good move for IFAs.”
How things shape up now depends entirely on the result of the tribunal (at the time of going to press no date had been set). Nicoll comments: “There’s a very wide spectrum of possible outcomes. The best outcome would be if they upheld what the DGFT said earlier this year. If not, we could find ourselves having to go right back to the beginning again.”
And, as Burnett adds, the alternative to the GISC is not particularly appetising. He says: “If we get this wrong now there can only be one result – statutory regulation. And with extra costs this is not something we would cherish.”