ICOB changes - Eyes wide open for change

I have heard from a number of brokers that they have still to implement the ICOB changes but, as most involve a reduction in prescription, many compliance consultants are recommending making the changes as soon as possible because they are almost all positive ones.

The background to the changes is a move to principles-based regulation and the Financial Services Authority has made an effort to remove as much of the gold plating as possible while still meeting the requirements of the insurance mediation and distance marketing directives.

One of the main differences is the reclassification of customers from retail and commercial to consumers and commercial customers. This may not seem much of a change but it is, in effect, a reversion to pre-FSA rules, as consumers will represent personal lines policyholders, with commercial customers meaning exactly what it says. In particular, mixed-use policies required to be treated as retail covers previously are now considered as commercial.

Sales of general insurance products now have separate rules from pure protection and protection policies such as PPI, which reflects the FSA's view that such products represent a higher risk to consumers. However, for telephone sales of most general insurance policies, the scripting will be shorter and will include the removal of the regulatory status declaration at the point of sale.

Perhaps slightly harder to understand in light of TCF is the removal of the requirement to invite consumers to renew 21 days in advance, in favour of a general in-good-time rule for all business. On the subject of TCF, the new rules also give clearer guidance regarding demands and needs statements to indicate that, for advised sales, they should show the customer's requirements as well as the underlying reasons for why the broker has selected that particular policy.

Another big change is the introduction of an eligibility requirement, under which the intermediary must ensure that the policyholder will be eligible to claim under the policy and point out any areas where they will not be able to claim. This is fairly obvious under a PPI policy where, for example, a self-employed person may not be eligible to claim under the unemployment section, though it may be harder to see and indicate on the majority of other types of insurance product. The eligibility section of the rules also clarifies the responsibilities of the broker to ask clear questions about material issues.

The transitional period ends on the 5 July and the FSA has issued a guide that highlights the new rules, ICOBS at a glance, on its website at fsa.gov.uk/pages/Doing/small_firms/insurance/pdf/ICOB_ataglance.pdf.