UK Financial Services Authority Issues Guidance on Selling General Insurance Policies on Price Comparison Websites
In October 2011, the UK Financial Services Authority (FSA) issued new guidance on selling general insurance policies on price comparison websites. The FSA is in charge of regulating the banking, financial services and insurance industry in the country.
Reason for issuing guidance
The FSA on reviewing the practice of selling general insurance policies through price comparison websites, found that the majority of price comparison websites and their operators:
- Failed to comply with general prohibition and restrictions on financial promotion set out in the Financial Services and Markets Act 2000 (FSMA)
- Did not have appropriate permissions in breach of the FSMA
- Did not comply with the requirements in the Insurance: Conduct of Business sourcebook (ICOBS)
- Did not comply with the Senior Management Arrangements, Systems and Controls sourcebook (SYSC)
Customers were also affected by the price comparison websites as they:
- May be misled about the services they are receiving from these sites as they think they are receiving a quote regarding policies based on their individual demands and needs when they are actually receiving an illustrative quote that is based on generic risk criteria.
- May be unable to claim benefits against a policy purchased through a lack of knowledge of all material facts associated with a policy. This can cause an insurer to refuse payment in part or in full on the benefits due under a policy.
- Are buying the policies from price comparison websites that don’t have enough safeguards against financial crimes. These sites can assist unauthorized insurance firms in selling policies against which a consumer cannot make a claim.
- May be confused about which firm to complain to in case of any grievances (whether the sites in question, insurance firms or the Financial Ombudsman)
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Price comparison firms’ responsibilities
The FSA guidance states that price comparison firms should comply with the regulatory requirements and specifically:
- Review their regulated activities and ensure that they are appropriately authorized or otherwise exempt
- Ensure that they only enter into contracts with insurance firms holding the appropriate authorization and permissions to conduct that regulated activity (or who are exempt);
- Withdraw their assistance from third parties if they are in breach of general prohibition;
- Review their disclosure documentation, sales procedures and terms and conditions and make sure that these are compliant with all relevant regulatory requirements including the Principles, ICOBS and the Unfair Terms in Consumer Contracts Regulations 1999. Sites have to comply with requirements regarding:
- customer eligibility,
- status disclosure,
- advice suitability,
- providing a proper statement of demands and needs,
- terms and conditions to exclude liability for the regulated activities they are undertaking; and
- Establish, implement and maintain adequate policies and procedures to ensure the firm complies with all relevant regulatory requirements.
Giving insurance advice
Since price comparison websites are selling insurance policies through recommendation, “pick of the best”, star ratings or displaying the name or logo of only one insurance product, it means they are practicing a regulated activity, i.e. acting in an advisory role. Before promoting policy products in this manner, price comparison websites and their operating firms have to ensure they have the necessary authorization under the FSMA requirements.
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