Insurance Mediation Directive (Hansard, 21 October 2002)

§ Lord McIntosh of Haringey

As the Economic Secretary to the Treasury announced in the House of Commons on 12 December 2001 (WA 890–891W) the Government propose to give the Financial Services Authority (FSA) responsibility for regulating general insurance and reinsurance mediation. The Government have today published a consultation document that sets out the intended approach to regulating the sale of general insurance products following adoption on 30 September 2002 by the European Parliament and Council of Ministers under the co-decision procedure of the Insurance Mediation Directive (the directive).

The consultation document explains that the FSA will regulate the following activities: introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance or reinsurance; assisting in the administration and performance of such contracts, in particular in the event of a claim; and concluding contracts of insurance or reinsurance.

The directive requires the regulation of mediation activities in relation to all contracts of insurance. However, it provides certain exemptions for insurance sold as part of a package, including travel 77WA insurance sold with a holiday and extended warranties that are contracts of insurance.

It is for the UK Government to decide whether to regulate those insurances that are exempted from the directive and the Government have decided to defer a decision on whether the FSA should regulate extended warranties pending the outcome of the Competition Commission inquiry into extended warranties for electrical goods.

As to travel insurances that are sold with a holiday, we need carefully to weigh the consumer protection issues against regulatory costs. The Government also need to weigh fairly the competition issues between those intermediaries that sell travel insurance direct and travel agents that sell insurance alongside a holiday. The Government have decided, therefore, to consult on whether to give the FSA responsibility for regulating these products. There are three options:

no statutory regulation of sales of travel insurance sold as part of a package;
FSA regulation to cover these sales in the same way as stand alone sales of travel insurance; or
industry-specific regulation, requiring sellers of these products to be authorised by the FSA unless they are subject to an ABTA code which would be certified by the FSA. Sellers who were subject to the ABTA code but who also carried on other FSMA regulated activity, including selling any insurance other than packaged travel insurance, would be subject to FSA authorisation in relation to all of their regulated activities (including the activities to which the ABTA code applied).

Responses to the consultation on general insurance and reinsurance regulation, and on the options for travel insurance sold as part of a holiday, should be sent to HM Treasury by 31 January 2003.