The consumer is king in the 21st century and the recent regulation of some health insurance products bears this out. Private medical insurance (PMI) is now regulated by the General Insurance Standards Council (GISC), which launched in July 2000. And the regulation of another major health insurance product, long-term care (LTC) insurance, is currently under consideration at the Treasury.
But no organisation is yet lined up to take on the regulation of income protection (IP) and critical illness (CI) insurance products which are just as complex and confusing for the consumer. And many industry experts are concerned that they may have fallen into a regulatory gap.
One of the principal attractions of the GISC was supposed to be that general insurance business would be subject to a single all-embracing body. So to omit two of the general insurance products most desperately in need of regulation makes little sense.
However, the GISC decided not to regulate CI and IP policies which last longer than five years.
The explanation offered by the GISC is simply that it decided to derive its scope from general insurance contracts listed in Schedule 2 to the Insurance Companies Act 1982 – which excludes long term business.
GISC spokesperson Catherine Nicoll says: “We were not legally obliged to do so but it was a convenient yardstick to adhere to when deciding upon a jurisdiction. We recognise that it is unsatisfactory having unregulated products sold through intermediaries. But we feel IP and CI fit more comfortably under the financial services’ banner. This is because they tend to be sold as part of a general lifestyle package involving the need to know a client’s overall circumstances.”
But GISC chief executive Chris Woodburn has stated that if these products do not become regulated by the Financial Services Authority (FSA) he would be morally obliged to look into taking them on board.
The good news is that the Treasury has finally made what could be the first move in the direction of FSA regulation of these products. It is understood that the consultation document on LTC regulation (not yet released at the time of writing) will also ask for views on whether CI or IP should also be regulated. This could lead to these products being examined by their own independent working party.
Such a move is long overdue. For years we have had to endure the absurd situation of seeing those who advise on investment products, the performance of most of which only a clairvoyant could accurately predict, having to comply with far higher regulatory standards than health insurance advisers – along with the clairvoyants themselves.
When the 1986 Financial Services Act, which regulates the sales of investment products, was being formulated the health insurance industry was virtually non-existent and could not have warranted serious consideration for inclusion. But a Treasury that truly had its finger on the pulse would have amended the Act years ago to accommodate health insurance products. This would have saved the GISC the embarrassment of having to justify its current stance.
Penny O’Nions, the principal at The Onion Group, an IFA based in Amersham in Buckinghamshire, says: “I continue to be surprised and disappointed that no one has stepped in to regulate IP and CI because their need for regulation is of equal, if not greater, importance than PMI. The FSA should take over all personal financial products, including general insurance, and have different sections for different products.
“At the moment, regulation is like a Swiss cheese with some elements falling through the holes. The bottom line is that anything that causes an outcry will bring further shame to the role of the IFA and specialist health insurance intermediary.”
O’Nions, who is also a qualified doctor, goes so far as to suggest that the public should not be given the option of buying health insurance products directly. She feels they should only be bought via specialist intermediaries but that sophisticated clients should be afforded a fast track service if the adviser is satisfied they know exactly what they require.
Susan Colley, who spent 25 years in nursing before setting up Torquay-based specialist healthcare intermediary West Country Health Care, has a similar view. She says: “How many tied agents and general IFAs could explain the difference between an MRI scan and a cystoscopy? I would never dream of talking to someone about what to do with their pension even if I was licensed to because I don’t have the expertise and I know that bad advice can ruin people’s lives.”