Context
The FSCP has published its response to the FCA Discussion Paper DP243/1: “Regulation of commercial and bespoke insurance business”. The response was provided as the Discussion Paper proposals potentially impact financial services protections available to sole traders and businesses buying standardised insurance product solutions. The FSCP makes the point that these businesses are unlikely to possess insurance expertise nor have access to professional or legal advisers to negotiate with insurers on an equal footing. BIBA has also published a response, available to its members only.
Key points to note and next actions
- The Panel view these “commercial” customers in many respects as requiring the same safeguarding, understanding, value, service and support considerations as retail consumers, and support the intention of the FCA’s rules.
- The Panel’s long-held Panel position is and remains that consumers, microbusinesses and most smaller SME firms should enjoy the same level of safeguarding and protection as provided for in ICOBS, PROD, PRIN and the ability to bring cases to FOS and the FSCS.
- Whilst the majority of the questions in the Discussion Paper are applicable to insurers, intermediaries and trade organisations, the Panel has responded to those where it believes that a consumer voice is required.
In terms of the main issues about which the FCA required responses:
- In relation to the proposal / option to change ‘SME’ classification, the response indicates that it favoured the option to replace the ‘large risks’ definition with the DISP eligible complainant definition (i.e., align thresholds and remove product-specific rules).
- In relation to the supplementary option of developing a new SME definition, the response favoured the supplementary option to add a rule to define all SMEs with 0-1 employees as ‘consumers’. This came with a caveat, though, stating that the Panel has concerns that this approach may be overly restrictive. Whilst understanding the rationale for focussing on sole trade firms, the Panel believes that there are likely to be many firms with only two employees (for example, husband and wife, parent and child) who are in no different position than a sole trader. The Panel would encourage the FCA to consider nuances such as these when developing policy changes.
- In relation to any unintended consequences of these options, the Panel has set out that changes to regulation should not lead to any compromise in protections as an unintended consequence for consumers or SMEs, and that the Panel will expect the FCA to mitigate such circumstances if they occur.
- In relation to the FCA’s proposals to amend the application of ICOBS rules to make them apply to co-manufacturing, the Panel agrees with the key issues the FCA has identified and agrees with the potential changes considered to the ICOBS disclosure requirements. The Panel believes that:
- a simple and transparent approach is required to safeguard consumers;
- the insurer should take the greatest proportion of the insurance risk; and
- that the lead insurer should be responsible for the management of service, support and claims.