The UK’s Financial Services Authority (FSA) announced that “the insurance industry has met the challenge laid down to achieve a solution to contract certainty in the UK. This has resulted in a more efficient market for buyers, brokers and insurers and brought competitive benefits to the UK market.”
At a meeting yesterday, January 24, with insurance industry leaders, the FSA was told that “90 percent of contracts in the subscription market and 88 percent in the non-subscription market are now achieving contract certainty.” Industry leaders were equally pleased with the accomplishment (See following article).
The FSA described contract certainty as “the timely agreement of the terms of an insurance contract and provision of the insurance contract details to a customer. It brings greater certainty for buyers about what they have bought and for insurers about the risks they are covering, whilst also reducing risks for brokers.”
John Tiner, the FSA’s chief executive, who’s stepping down in July, first defined the problem of “deal now, detail later,” a widespread practice in the London market, in December 2004.
He challenged the insurance industry to end the practice and set a deadline of two years to find an industry solution or face regulatory intervention. The FSA has been monitoring market progress by working with the industry groups set up to achieve this.
Tiner commented: “This is a major achievement by the UK insurance industry. Through their concerted hard work they have addressed an issue here in the UK that affects insurance globally. It will serve as a catalyst for the ongoing wider reform of the industry and will further raise the competitiveness of the UK industry.
“This work has also demonstrated the benefits of our preference for working towards market-based solutions where we use our influence to effect change rather than our formal powers. A market failure has been largely fixed by the industry without a single new rule being introduced.”
The FSA said that contract certainty would “continue to be a supervisory priority in 2007, and that it will “ask the market to focus its efforts going forward on reducing the number of contracts that do not meet the market’s contract certainty standards. In those cases where it believes that firms have fallen behind the rest of the market it will consider regulatory action to address this.”
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