PPI Grouped With Life Cover
So, after a stalled release, the new Icob sourcebook is in the public domain and, at a quick glance, it does not look like the FSA has veered far from its original proposals set out in June’s consultation paper.
Life insurance will be regulated alongside protection products like critical illness cover and payment protection insurance rather than being grouped in the ‘other’ category with general insurance products, which will face a less stringent regime. This was one of the most contentious areas of the consultation paper.
The regulator says: “We acknowledge that term assurance is a relatively simple product with limited market failures when compared with other protection products. However, the evidence supports our view that it does not fit comfortably into the ‘other’ group of products and that placing it in this group would create additional risks for consumers.”
The FSA has come down hard on the PPI industry by introducing a stronger framework of rules to improve selling standards. As well as oral disclosure it has increased the existing cancellation period from 14 days to 30 days and introduced a new rule requiring firms to establish that customers would be eligible to claim benefits.
In other news HBOS is seeking mortgage brokers to distribute a new simplified life product through a single-tie arrangement. Sources say the product has been developed for brokers and requires minimal underwriting. HBOS is believed to be assuring brokers it is competitively priced but it is unclear whether the banking giant plans to sell other protection products through similar arrangements.
HBOS head of protection Clive Allison says: “We are exploring future market opportunities for our protection products. We are holding preliminary discussions with a number of organisations but have no firm plans.”
But will mortgage brokers fancy a single-tie? A source says: “I do not think the brokers offering choice in the mortgage market will be content selling only one provider’s protection products.”
And lastly HM Revenue & Customs has confirmed that pre-Budget report proposals to remove tax relief on reinsurance will be reworked to ensure they do not push up protection premiums.
HMRC was warned in October that the proposals, aimed at closing a tax loophole for insurers, could increase premiums by up to 10 per cent because insurers would take on more liability by reinsuring less business or pay more tax by reinsuring the same amount.
Two weeks ago, it said in a letter to the Association of British Insurers that it will amend the proposals to ensure they only apply in circumstances where insurers are using reinsurers to avoid tax. It says it is considering “how best to distinguish between the different types of rebate and what the appropriate counter measures should be” but does not give any indication when redrafted proposals will be released.
Insurers currently get tax relief on expenses in respect of reinsured business while reinsurers get tax relief on reserves they hold to pay future claims. This has seen some insurers assuming all the expenses while passing liability for reserves to the reinsurance company. However, experts say this rarely takes place today.
Tags: ppi compensation, ppi claim