Consumers beware – of gaps in new insurance regulation – says Consumer Panel

13 January

The Consumer Panel today warned the FSA that it must make consumers better aware that some general insurance will not be covered in full by the FSA regulation which starts this weekend. There are two important omissions:

• Firms still awaiting a final decision from the FSA are to be granted interim authorisation. Consumers who buy insurance through these companies will not be entitled to compensation if they lose money through the company going out of business. Moreover, such firms are required to tell consumers they are only "interim" authorised, but there are no words specified by the FSA. Thus consumers may not realise that they are doing business with such a company and that they are therefore not eligible for compensation.

• If people buy travel insurance through a travel agent when they book a holiday, this will not be covered by FSA regulation. So consumers will not have access either to the Financial Ombudsman Scheme, or the Financial Services Compensation Scheme should the firm subsequently close.

Ann Foster, Chairman of the Consumer Panel said:

"There are major gaps and inconsistencies in the new general insurance regulation, which will not be clear to individual consumers. Everyone needs to be aware that they will not get the full protection of FSA regulation when they buy through an interim authorised company or from a travel agent. The FSA must tell consumers to check all the details before they buy."

Notes to editors

1. The Financial Services Authority (FSA) is due to take on the regulation of General Insurance from 14th January 2005.

2. The FSA established the independent Financial Services Consumer Panel in December 1998 to advise its Board on the interests and concerns of consumers and to report on the FSA’s performance in meeting its objectives. The Consumer Panel has statutory status. The FSA must consider its representations and, if it disagrees with a view expressed or proposal made in the representation, it must give the Panel a statement in writing of its reasons for disagreeing.

3. The emphasis of the Panel’s work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA’s remit.

4. Consumer Panel brings together a wide range of relevant experience. This includes financial services regulation, working with vulnerable consumers, consumer protection, consumer education, front-line money advice, legal expertise, competition policy, public policy analysis, market research and media.

5. There are currently fifteen members of the Panel as listed below. For further information on individual members, see About the Panel.

   Ann Foster (Chairman)
   Dianne Hayter (Vice Chairman)
   Yvonne Gallacher
   Harriet Hall
   John Howard
   Tony Hetherington
   Stephen Locke
   Nick Lord
   

   Nick Pearson
   Adam Phillips
   Paul Salvidge
   Robert Skinner
   Carol Stewart
   Richard Smethurst
   Dave Watts