Stop red tape now!
As the FSA’s deadline for contract certainty inches ever closer, Molly Bennett finds that it’s no time for brokers to relax – they must act now to avoid further regulationBy the end of 2006, the FSA expects 85 per cent of all insurance policies in the London market to achieve contract certainty, ending what it calls the insurance industry’s ‘deal now, detail later’ culture. While the FSA hasn’t yet instituted any formal regulation, if brokers want to avoid it later, they should aim to meet the targets now.
Why contract certainty?
Contract certainty came in the wake of the 2001 World Trade Center attacks. The leaseholder had taken out cover for the total cost of rebuilding one tower per single event, but when he claimed for two separate events (one per tower), his insurers contended that it had been a single coordinated terrorist attack
and therefore he should only be able to claim back the cost of rebuilding one tower. In hindsight, the need for clarity in contract wording was obvious.
Contract certainty means that the insured and the insurer have to agree all terms and conditions prior to inception. Brokers and insurers must also supply evidence of cover within 30 days for commercial business and five days for retail. Most brokers are well on the way to meeting this target but, though they’ve made a lot of progress, they shouldn’t rest on their laurels.
Does it apply to you?
The answer is yes, but some brokers, particularly in the high street, believe it’s just more red tape, especially for products where the contract is cut-and-dried. Peter Staddon, head of technical services at BIBA, disagrees. “Many brokers are right in that some contracts are ready-made, but when I was a broker I’d always take a product off the shelf and tailor it to my client’s requirements. Therefore, it still needs checking.”
Peter is urging brokers to report figures to him at quarterly dates. “Brokers should have some sort of process already in operation to monitor contract certainty in a robust format, so that when the FSA comes knocking, expecting us to be scrambling to meet the deadline, we can prove them wrong.
“We want to make sure they don’t have to think about a Plan B,” he says. “If they do, the rules will be much harder on us. We need to work together as an industry to achieve this.”
What the brokers think
“Customers have a right to expect good, prompt and professional service from us but, in my view, unless someone finds a way to make time stand still, there are too many ifs, buts and maybes to enable the industry as a whole to deliver 100 per cent contract certainty at any particular moment in the lifecycle of the average policy.”
John Leigh, director, IFM Insurance Brokers, Sheffield
The Hiscox view
Claire Emsden, senior operations analyst for Hiscox UK retail, says:
“We continually monitor contract certainty performance and look for ways in which we can improve. In order to meet our targets we have to work hand in hand with our brokers.
“For example, one broker has approached us to discuss how they can improve their figures. So, with their underwriter, we’re going to put together a joint strategy for how we can support their initiatives and how they can support ours. We are happy to do that for any broker.”