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The UK financial regulator is creating a new definition of insurance for large corporations, succumbing to insurers’ appeals on many of the commercial policies that are excluded from costly conduct and compliance rules.
On Wednesday, the Financial Conduct Office announced plans to scrap existing rules that will cause confusion among insurers, boost corporate insurance costs and limit the availability of small groups’ coverage.
Regulators said the move is part of a broader proposal to remove “invalid, outdated or replicated regulations” from insurance companies in order to respond to calls from the Kierstama government to support UK economic growth and competitiveness.
“We listen and take action from the industry. By doing so, we reduce regulatory costs, increase the competitiveness of the already-worldly leading UK insurance sector and maintain critical protection for our small clients.”
The updated definition of insurance “commercial or other risk agreements” will align the definition of a large company with existing size thresholds to determine which companies can appeal to the Financial Ombudsman Service.
Regulators will continue to exclude certain types of insurance from rules of conduct, such as aviation and maritime policies. However, these exclusions do not apply to retail consumers who purchase such covers, introducing a distinction between container ships and canal ship covers, or jumbo jets and small civilian planes.
According to FCA, UK insurers write about policies for their customers and risks that are located entirely overseas, and are excluded from their actions and compliance rules to avoid duplication and conflict with foreign regulations.
The FCA predicted that the changes would “encourage new entrants to the market,” and said “should benefit commercial customers through enhanced competition and new innovative services.”
Changes to small businesses whose insurance policies are no longer covered by conduct and compliance rules “can lead to worse outcomes,” according to FCA.
However, he added that they were deemed to have “sufficient resources to protect their interests” and would benefit from some of the higher-level rules.
Executives in the UK’s commercial insurance sector have long called for changes to the rules that include a large company’s customer contracts that place too much on retail consumer compliance requirements.
“The new definition of large commercial insurance customers is especially welcome,” said Caroline Wagstaff, CEO of London Market Group, which represents companies across the insurance industry.
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“If applied consistently across the rulebook, regulators can focus on protecting retail and small business consumers who really need it while reducing unnecessary regulatory requirements for corporate clients,” she said.
The FCA two years ago, the introduction to consumer obligation rules meant that companies could eliminate duplicate rules, including requirements for insurers to check the value of their products each year, as they required companies to ensure that their customers achieve good results.
Rolling back the scope of consumer obligations was the core board of the UK Insurance Brokers Association lobbying agenda, which will hold its annual meeting in Manchester on Wednesday.
