- 92% believe the FSA has underestimated the cost of implementing new rules
- 87% worried that “gold-plating” will give foreign firms a competitive advantage over domestic players in the UK market
- 77% believe general insurance regulation presents a major IT challenge
Many firms will be “authorised but not compliant” when the Financial Services Authority (FSA) starts to regulate the general insurance industry in January 2005, according to a survey of over two hundred of the industry’s senior management by Docucorp, a provider of information solutions. 96% of those surveyed expect a substantial number of insurers and brokers to have completed the necessary paperwork to the FSA’s satisfaction - and have achieved authorisation - without actually being compliant with the new regulations.
The survey also reveals that nearly two thirds (64%) within the general insurance industry believe far more cost-effective methods of compliance could have been found had they been given longer to prepare. 92% believe the FSA has substantially underestimated the cost to the industry of implementing the new regulatory requirements.
Tracey Robinson, Managing Director of Docucorp commented: “The FSA does not appear to have taken into account the extent of the preparations that insurers and brokers are having to make. The majority of firms applying for general insurance authorisation (63% in our survey) are not already authorised by the FSA for any other type of business, such as life assurance or investment management, and are therefore entirely unaccustomed to such stringent regulation. Some of the rules, most notably the introduction of a regulated sales process and major, new record-keeping requirements, are also entirely new to the industry and require substantial changes to IT systems that some firms are clearly going to struggle to complete by January.”
The new regime is set to come into force on 14 January in order to meet the deadline for EU Member States to implement the Insurance Mediation Directive. 65% of those surveyed by Docucorp are fearful that the watchdog will seek to make examples of some firms once the new regime starts.
Tracey Robinson continued: “The FSA appears to be allowing pressure to adhere to the blueprint of Europe to override UK interests. Our survey indicates that the general insurance industry simply needs longer to prepare if this new regime is to be fair and effective, and the costs to consumers and shareholders are to be minimised.”
Docucorp’s survey also reveals concern within the general insurance industry over the impact of the FSA’s “gold-plating” of EU directives by making UK regulations more stringent than those strictly needed to comply with Brussels. 87% are worried that EU regulatory passports mean that firms authorised in Continental Europe will be able to operate here with lighter regulation than domestic players.
Tracey Robinson said: “The problem of gold-plating makes it all the more important that UK firms act swiftly to find the most cost-effective means of complying with the regulations that the FSA is imposing.”
77% of those surveyed believe the new regulatory regime for general insurance presents a major IT challenge. For example, under the regulations firms must be able to access all information that the regulator may require, such as sales and policy documents and claims data, within 48 hours. 86% of respondents say that their existing record keeping systems would be unable to cope with this requirement.
Tracey Robinson added: “Our research shows that the majority of firms are going to be relying on adaptations to their existing processes in the early stages of the new regime. However, experience of coping with a similar regulatory regime in the life assurance and investment management sectors indicates that IT systems that use rules to entrench compliant procedures within an organisation offer by far the safest and most cost-effective means of compliance. We therefore expect the general insurance industry to invest in applications of this kind over the coming months and years, and this should significantly improve the standard and cost-efficiency of compliance.”