FSA and Health Insurance

Final ICOB rules place PMI in low-risk category

The Financial Services Authority has published its new insurance conduct of business (ICOB) sourcebook, which sets out the standards and requirements for how general insurance firms deal with their customers.

Under the new rules, which come into force on January 6, 2008, advisers recommending private medical insurance (PMI) will benefit from less stringent selling requirements.

The rules split insurance products into two categories: protection products, which will face more stringent selling rules; and "other" products, which will have high-level rules applied to them.

The protection category is made up of products that the FSA believes have a higher risk of consumer detriment. It includes term assurance, critical illness, income protection and payment protection insurance.

Advisers selling these products will have to comply with new standards, such as ensuring better oral disclosure of key information about policies.

Meanwhile, the "other" category includes products that the FSA believes are generally working well, namely, PMI, motor, household and pet insurance.

Some respondents to the FSA's initial consultation paper on ICOB argued that PMI is complex and so should be in the protection category. However, the FSA said its high-level product disclosure rule requires a firm to take reasonable steps to provide a customer with appropriate information so they can make an informed decision.

"The PMI market generally works well for consumers, and there appears to be little detriment experienced by them," it stated. "So we have decided to keep PMI in the ‘other' category. However, we will review the PMI market after implementation to ensure no material new consumer detriment arises as a result of grouping PMI with the ‘other' products."

Another product that attracted a lot of comment is term assurance, which some insurers argued is a simple product with little scope for detriment. But the FSA said it does not fit comfortably in the "other" group of products and that placing it in this group would create additional risks for consumers.

"Including term assurance in the ‘other' group would create an artificial separation between sales of term assurance policies with the critical illness option and those without it," the FSA said.

Firms are expected to meet the standards by July 6, 2008.