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Inisight: FSA seeks clarity on insurance message

Motor retailers should be on stand by to receive a phone call from the Financial Services Authority over the next couple of months.

The FSA wants to assess companies’ progress towards implementing the Treating Customers Fairly (TCF) programme, due to begin at the end of March.

A statement from the FSA posted on the new motor retail section on its website says: “Your firm might get a call from one of our staff over the next couple of months as part of our survey. We’ll speak to 900 firms in total, including motor retailers, and visit a number to verify answers.”

The statement – and the motor-dedicated website section – underlines the FSA’s attempts to improve its communication with the industry. Dealers might raise their eyebrows quizzically at that; after all the FSA legislation is two years old this month, and communication has often seemed a low priority.

The FSA counters by pointing out that there are around 15,000 small firms it has to deal with – and many do not have insurance as a principal part of their business operations.

“The legislation was a huge challenge because of the huge number of firms caught, especially companies where insurance isn’t their principal form of business,” says Andrew Honey, FSA head of insurance department, Small Firms Division. “We needed a new language to deal with these companies.”

His immediate priority was to identify the areas where the FSA felt there was greatest risk of non-compliance and where there was most potential consumer detriment.

The two identified areas were Disclosure and TCF. Disclosure of information is crucial to allow customers to make an informed decision. It includes making clear to consumers the extent of coverage of the insurance product, exclusions, pricing and the relevance of the product to them.

#AM_ART_SPLIT# “We’ve seen good progress from the general insurance sector but there is still some way to go, in particular on PPI (Payment Protection Insurance),” says Honey.

PPI has been a hot topic after the FSA was critical of the way policies were sold by companies in the motor retail industry. The authority believes that PPI, a high margin product, is not relevant for many customers because of the level of exclusions.

“It has its place and is right for some people, but it has to be sold correctly,” says Honey.

The issues surrounding PPI are covered under TCF. By March, dealers have to provide evidence that they have taken steps to implement TCF. It means giving customers every opportunity to have a fair deal.

“It’s not about satisfaction; it’s about them getting the right product,” says Honey. “Dealers need to get customers to engage – and we have to work with them to make them more demanding.” But what if customers aren’t interested in reading the small print; what if they just want the cheapest price?

“Firms should provide only the information that they have to provide. That means the important issues, typically a summary of the terms and conditions, and the exclusions,” says Honey. “But Disclosure includes the customer as well, and it’s important to make them aware of their obligations.

“TCF is not about giving customers what they want; it’s about matching what you have to what they need. You have to qualify them as fully as you do when selling the car.”

The FSA has already taken steps to improve its communication. In addition to the motor dedicated section on the website, it is considering more industry specific training courses with case studies showing real-life examples. It has also tempered the flood of information sent to dealers.

“We used to send out an email a day,” says Honey. “We have now reduced that to one per month and we signpost what is relevant to each type of business. It makes it much easier to get the message across.”

The FSA recognizes that it also has a responsibility to educate consumers about the regulations. It is looking to launch a publicity campaign next year on insurance that will include press ads, radio and leafleting. It also has a healthcheck on the BBC website as well as a consumer section on its own website.

“At the moment, the person selling knows more than the person who is buying. We want to help even that up,” says Honey. #AM_ART_SPLIT# Getting the right returns

Arguably the area of FSA legislation that is of most consternation for retailers is RMAR (Retail Mediation Activities Return).

In addition to the complexity and level of information required, retailers complain about the frequency of the RMAR returns, due every six months. Some have requested a change to a yearly report.

FSA rules this out, claiming a year is too long to ensure protection and track financial performance. For some dealers, it has a point.

“Some companies do not have adequate financial information – they don’t even know if they are solvent,” says Andrew Honey. “The RMAR flags some capital insolvency issues that these companies can now address.

“RMAR also allows us to have a light touch because we can rely on the companies’ regulatory reporting.”

FSA estimates the time needed to complete the RMAR is “a matter of hours”. Eighty per cent of firms submit RMAR on time, but it urges retailers to be completely honest if they do not understand the forms.

“We want to know the things they find difficult. We’re sure some don’t want to expose a lack of knowledge to the FSA because they think we’ll check them out – that’s not true,” says Honey. “If they’re struggling, they should ask for our help. We rely on firms alerting us with issues.”

#AM_ART_SPLIT# Self-supporting tool for TCF

Treating Customers Fairly can be a difficult concept for companies to understand.

The FSA has launched a self-reporting tool that includes prompts for companies to assess their own performance. The tool gets them to think about whether their strategy, reporting, sales and post-sales processes pose a risk to TCF.

“We’ve had positive feedback to the form. If dealers have an issue over TCF, it’s a good place for them to start,” says Andrew Honey.

Dealers can download the form at: www.fsa.gov.uk/Pages/Doing/small_firms

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