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Latest regulations may hit dealers' insurance profits

Rule F42 is threatening to stifle a source of revenue for dealers who make money from selling insurance-related products.

It is being introduced by the General Insurance Standards Council (GISC) whose members include major insurance companies. GISC, an independent organisation, regulates insurance sales and advisory and service standards.

It has announced regulations to prevent its members from dealing with intermediaries that are non members. Rule F42 applies to all insurance-related products, including car policies, payment protection, vehicle replacement and mechanical breakdown insurance.

Dealers who enjoy strong margins from selling these products will need to submit their applications to GISC before September 1, with all submissions processed by the end of the year.

Chris Wood, training and development manager of Direct Group, which is advising dealers, said all sales staff involved in insurance activities would be subject to checks by GISC assessors to ensure they were suitably qualified, trained or experienced.

“Membership poses a number of challenges,” he said. “Any skills shortfall has to be covered by a minimum level and standard of training.”

Dealers could become an agent, or sub-agent, of a GISC member, saving the membership fee, but that would “tie the dealer to that manufacturer's insurance products – they would not be allowed to sell rival products”, said Mr Wood.

Donald Pinkney, managing director of Motorway Direct, which has a £1bn strategic partnership with RAC Warranty, said: “Insurers would have to take responsibility for the dealers who become agents to sell their products – they are not prepared to take this risk.”

Motorway Direct is planning a series of training courses to educate dealers about the new regulations.

Mr Pinkney feared many of the smaller dealers were unaware of the legislation and its implications. “Insurers will not deal with you unless you are registered. If any dealer is making money out of selling insurance products, they must register with the GISC as soon as possible,” he said.

Membership fees are 0.1% of the income earned from insurance-related products. Mr Wood estimates that a dealer selling 800 cars a month and making £250 from insurance-related products, would pay around £200 a year.

Chris Woodburn, GISC chief executive, urged companies to apply for membership “sooner rather than later”.

He said: “GISC has more than 2,000 members and applications received. I envisage that by January 2002 the majority of organisations with whom business customers and consumers arrange their insurance will be regulated within the framework of a single regulatory body.”

The GISC regulations, developed in conjunction with the Association of British Insurers and British Insurance Brokers Association, are intended to stop misrepresentation when selling insurance by setting minimum standards.

Dealers will be expected to provide full explanation on what each insurance product covers to ensure customers are treated fairly.

GISC chairman Anthony Howland Jackson said: “Implementation of Rule F42 provides the glue which will bind together the industry under one single coherent regulatory regime. This has always been the objective of the GISC board, in line with the Government's wishes.”

Mr Wood said dealers should see GISC as an opportunity to improve penetration of insurance-related products.

“Firstly, it is a chance to generate customer credibility from GISC membership and compliance,” he said.

“Secondly, it is an opportunity to review the insurance sales process and develop a training programme that is not only compliant, but also increases insurance profit.”

However, Rule F42 is believed to be the first wave of the GISC regulations.

A second tier may force dealers to disclose how much they bought the insurance product for, revealing their profit margins, to give consumers full transparency.

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