FSA regulation of insurance selling and administration do I need to be authorised?

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1 Financial Services Authority FSA regulation of insurance selling and administration do I need to be authorised? Do I need to read this factsheet? Since January 2005, we (the FSA) have been responsible for regulating intermediaries selling general insurance policies (e.g. motor insurance, home contents insurance) and some long-term insurance policies (e.g. critical illness, term assurance). At the same time, we began regulating intermediaries in some parts of the after-sale process (e.g. helping policyholders to make insurance claims). We already regulate the sale of life insurance policies by intermediaries. Firms and businesses affected by these developments need to consider whether they will need to seek our authorisation or become appointed representatives of an FSA-authorised firm. You should read this factsheet if: you are involved in any way in helping people buy insurance products, such as introducing people to an insurance broker or insurer, recommending specific policies or helping people apply for and obtain policies; or you are involved in helping people make claims under insurance policies; and you are remunerated for these activities. If you do any of these things you should consider whether you need to apply to become authorised or become an appointed representative of an authorised firm. You need to consider this, even if these activities are secondary to your main business. FSA regulation of insurance selling and administration will I need to be authorised? Below is a list of the sort of firms and businesses that may find this factsheet useful. Their activities might include offering insurance policies with the products or services they provide, or helping people to make claims under those policies. shops/retailers; motor dealers and car hire firms; travel agents; electrical appliance retailers/mobile phone sellers; jewellers/antique dealers; doctors, dentists and vets; home removal and freight forwarding companies; housing associations, surveyors and estate/property managers; employers and trade unions who offer insurance to employees and members; and affinity groups, sports and social clubs and associations.

2 What is the purpose of this factsheet? This factsheet is a brief introduction to the regulation of insurance selling and administration. It is aimed at businesses, groups, professions and associations whose main business or activity does not relate to insurance and who are not already regulated by us (see the examples above). (It does not, however, cover the position of solicitors, accountants or actuaries, or that of local authorities.) We hope that it will help you to consider whether you need to apply to us for authorisation. This factsheet also outlines the possible choices available to you besides seeking our direct authorisation. For example, you may wish to consider whether you can take the benefit of certain exclusions under the legislation or become an appointed representative. If you were to do the latter, your business would still be subject to regulation. But rather than our authorisation, oversight of your compliance with our rules would be the responsibility of another FSA-authorised firm. Please note that this factsheet is not a definitive or comprehensive statement of the law, nor does it give legal advice or purport to do so. If you are in any doubt about whether you are carrying on a regulated activity you should consult our Guidance on Insurance Mediation Activities in chapter 5 of the Perimeter Guidance manual of the FSA Handbook. Alternatively, you should read the relevant legislation, or take independent legal advice as appropriate. You may also wish to discuss your position with the insurer who provides you with the insurance products you offer to your customers. Will I need to seek authorisation from the FSA? When deciding whether you need to seek authorisation you should consider four questions: Will I be carrying on a regulated activity in the UK? If so, will I be carrying on a regulated activity by way of business? If so, will my regulated activities be excluded? If not, what options do I have other than becoming authorised? Step one: Am I carrying on a regulated activity in the UK? You may need to be authorised by us if you are located in the UK and your business includes carrying on one of the following regulated activities: Arranging the purchase of insurance policies: This covers a range of activities including introducing a customer to an insurer or insurance broker, as well as helping someone fill in an application form and forwarding it to an insurer. Advising on insurance policies: This includes recommending a specific insurance policy to a customer. Dealing as an agent: This includes entering into a contract of insurance with a customer on behalf of the insurer (for example, if you issue cover notes) or vice versa.

3 Assisting in the administration and performance of insurance policies: This includes notifying an insurance claim to the insurer and negotiating settlement of the claim on behalf of the customer. Where you are only handling claims on behalf of the insurer and not the customer, this will not be a regulated activity. Simply providing information to a claimant or insurer in connection with the assessment of a claim is not a regulated activity either. This factsheet refers to the first three of the above activities as insurance selling. Step two: Am I carrying on a regulated activity by way of business? In deciding whether you carry on insurance selling or administration by way of business, you should consider whether these activities provide a direct financial benefit to your business. For example, an employer who offers a health insurance package to its employees, but does not receive a commission or any other commercial benefit as a result of this activity, will not generally be carrying on insurance mediation by way of business. You should be aware, however, that financial benefit need not be in the form of money or include a profit element. In some cases insurance policies are advertised as being free to customers, for example, because customers who buy a product also get insurance for that product for no extra charge. If you offer insurance of this kind to customers you still need to consider whether you are carrying on regulated activities by way of business since your business will often receive a financial benefit from selling insurance in this way. Further details about the by way of business test, including how the test applies to firms that sell insurance policies on a one-off basis, are in the Perimeter Guidance. Step three: Are the regulated activities that I am carrying on excluded? If the answers to questions 1 and 2 are yes, you should next consider whether you could rely on an exclusion so that you will not need to be authorised. Two key exclusions are described below. For further information about these and other exclusions you should read the Perimeter Guidance. Providing information to customers on an incidental basis The first exclusion will allow you to avoid the need to be authorised or an appointed representative if: your insurance selling or administration activities are limited to providing information to a policyholder or potential policyholder; and providing this information is incidental to your main profession or business. If you do no more than introduce your customers to insurers or brokers, you may be excluded from regulation. For example, a vet would be able to rely on this exclusion to give their customers information about a specific kind of pet insurance or the contact details of pet insurance providers without needing to become authorised. You can rely on this exclusion even if you receive a commission from insurers for introducing your customers to them. There are further details of what you can and can t do if you are relying on this exclusion in the example in this factsheet s Annex. You should note in particular that the exclusion does not extend to: advice in the form of a recommendation to buy a specific policy; filling out an application form on behalf of a customer; or information provided to the insurer.

4 Connected contracts of insurance If you are a retailer of goods (other than motor vehicles) or a travel agent selling insurance policies or helping customers make claims under them, there is a second exclusion that is potentially relevant to your activities. Retailers are excluded from regulation where their activities are limited to general insurance policies for non-motor goods which: are for five years or less (including renewals); have an annual premium of 500 euros or less; cover the risk of breakdown, loss of, or damage to the retailer s goods; do not cover liability risks (i.e. liability of the insured to third parties); are complementary to the goods supplied by the retailer; and are in standard form. Travel agents and other providers of travel services are excluded from regulation where their activities are limited to general insurance policies for travel booked with the travel agent which: are for five years or less (including renewals); have an annual premium of 500 euros or less; cover the risk of damage to, or loss of, baggage and other risks linked to the travel booked with the travel agent or provider of travel services; do not cover liability risks (unless this cover is ancillary to the main cover provided by the policy); are complementary to the service supplied by the travel agent or provider of travel services; and are in standard form. Further details about these conditions and, in particular, the meaning of liability risks are in the Perimeter Guidance. If you are in any doubt you should consult the Perimeter Guidance. Step four: What options do I have other than becoming authorised? If after Steps 1 3 you decide that you are carrying on regulated activities in the UK by way of business, you still have another option besides becoming authorised. One or more FSA-authorised insurers or insurance intermediaries may be willing to appoint you as their appointed representative and act as your Principal. As an appointed representative, you would not be directly regulated by us. Instead, your Principal would take regulatory responsibility for your activities as an appointed representative. Examples The Annex to this factsheet contains examples of the regulatory position of a retailer who offers insurance for the electrical goods it sells to its customers. The examples run through various stages of the sales process, showing when the retailer falls within and outside regulation. You may notice common features between the examples and your own business (where it relates to general insurance business), which will help you to consider whether you might be carrying on regulated activities.

5 What do I do next? If you decide that you need to be authorised by us you must obtain a copy of our application pack. ( If you are still unsure about whether you need to seek authorisation from us, it may help you to look at the Perimeter Guidance or seek professional advice. There is further information on the applications process on our website at: Will I be regulated? Yes Do I carry on regulated activities in the UK? Am I carrying on these activities by way of business? Can I rely on an exclusion (e.g. provision of information, connected contracts of insurance)? Yes Yes Authorisation not required Seek authorisation from the FSA OR Become an appointed representative

6 Annex A retailer who promotes insurance for the electrical goods it sells 1. The retailer displays leaflets advertising insurance for electrical goods. Is this a regulated activity?, the mere display of information about an insurance policy is not a regulated activity. 2. The retailer sells electrical goods to customers and gives the customers the contact details of an insurer who offers electrical goods insurance. Is this a regulated activity? Yes, the retailer is arranging the purchase of insurance policies. direct benefit to its electrical goods business. Is an exclusion available? Yes, the retailer should be able to rely on the exclusion for providing information on an incidental basis. It may also be able to rely on the exclusion for connected contracts of insurance, provided the insurance policies being offered fulfil all of the conditions of that exclusion (see the section Connected contracts of insurance above). 3. The retailer suggests to customers that they should take out insurance for the electrical goods they buy, but does not recommend a particular policy. Is this the regulated activity of advising on insurance policies?, since the retailer does not give advice about or recommend a specific insurance policy. 4. The retailer suggests to customers that they should take out insurance for the electrical goods they buy and specifically mentions that it has a policy available if they would like it. Is this the regulated activity of advising on insurance policies? Yes. For these purposes, the retailer is recommending a specific insurance policy. direct benefit to his electrical goods business. Is an exclusion available? Possibly the connected contracts of insurance exclusion may be available to the retailer provided the insurance policies being offered fulfil all the conditions of that exclusion. However, because the retailer is advising, and so is doing more than merely providing information to the customer, it cannot rely on the provision of information exclusion. If not, can the retailer carry on these activities as an appointed representative? Yes, if they can find an FSA authorised firm willing to act as Principal. 5. The retailer sells electrical goods to customers and recommends a particular electrical goods insurance policy to them. Is this the regulated activity of advising on insurance policies? Yes. The retailer recommends a specific insurance policy. direct benefit to its electrical goods business. be available to the retailer provided the insurance policies being offered fulfil all the conditions of that exclusion. However, because the retailer is advising and so is doing more than merely providing information to the customer, it cannot rely on the provision of information exclusion. If not, can the retailer carry on these activities as an appointed representative?

7 6. The retailer sells electrical goods to customers and helps customers fill in an application form for an insurance policy to cover these electrical goods. Is this a regulated activity? Yes. The retailer will be arranging the purchase of insurance policies. direct benefit to his electrical goods business. be available, provided all the conditions are met. However, by completing the application form the retailer is doing more than merely providing information to customers so cannot rely on the provision of information exclusion. If not, can the retailer carry on these activities as an appointed representative? 7. The retailer is authorised to conclude the sale of insurance policies to customers on behalf of the insurer where those policies cover electrical goods purchased from the retailer. Is this a regulated activity? Yes. The retailer will be arranging the purchase of insurance policies and dealing as an agent. direct benefit to its electrical goods business. be available provided all the conditions are met. Can the retailer carry on these activities if it is an appointed representative? 8. The electrical goods purchased by a customer from the retailer are subsequently damaged in circumstances falling within the scope of the cover provided by the policy. The customer contacts the retailer, who sends the customer an insurance claim form. The customer sends the form to the insurer. Is this a regulated activity?, simply sending the customer a claim form does not amount to assisting in the administration and performance of a contract of insurance. 9. The retailer instead helps the customer fill in the claim form, and then sends it to the insurer. Is this a regulated activity? Yes, it amounts to assisting in the administration and performance of a contract of insurance. Is it carried on by way of business? Yes, if the retailer receives a payment for the service or other direct benefit to its electrical goods business. be available provided all the conditions are met. Can the retailer carry on these activities if it is an appointed representative? 10. The retailer instead has authority from the insurer to provide the customer with replacements for the damaged electrical goods. The retailer then recovers for itself the cost of the replacement electrical goods from the insurer. Is this a regulated activity?. The retailer has authority to settle claims by its customers on behalf of the insurer. It is handling claims for the insurer, which is not a regulated activity. The Financial Services Authority 25 The rth Colonnade Canary Wharf London E14 5HS United Kingdom FSA Switchboard Number +44 (0) Registered as a Limited Company in England and Wales Registered Office as above.