FSA calls for reform in the insurance industry

The UK's Financial Services Authority has called for the insurance industry to change its handling of commercial insurance contracts.

The UK's Financial Services Authority has called for the insurance industry to change its handling of commercial insurance contracts.

Britain's finance watchdog, which is set to take responsibility for regulating general insurance from the start of next year, indicated its intention to clamp down on any practices considered anti-competitive. The UK insurance industry had previously been self-regulated.

Insurance brokers have come under pressure following investigations carried out in the US by New York Attorney General Eliot Spitzer. The probe uncovered the widespread use of contingent commissions, a practice used to steer clients to particular companies.

Speaking in New York, John Tiner, FSA chief executive, said that the agency would meet a number of key insurance industry personnel and look to industry to take the lead role in delivering solutions within the next two years.

Mr Tiner told his audience that the FSA wants to see the end of the practice of "deal now, detail later", which has led to estimates of several hundred thousand outstanding policy wordings across the insurance market. This lack of certainty at the time of signing commercial contracts creates risk for policyholders, insurers and brokers.

"As the FSA prepares to take on regulatory responsibility for insurance mediation, we challenge the London Market - the underwriters, the brokers, the infrastructure providers and the clients - to develop and execute as rapidly as is possible a market based solution to this issue of contract certainty," added Mr Tiner.

"Consistent with our philosophy of working with the grain of the market, the FSA wants to see the insurance industry grasping this nettle and moving to a business and operating model which is transparent and efficient," Tiner concluded.