Cost of insurance set to increase

The cost of insurance is set to rise as new rules governing the industry come into force on Friday.
Only firms authorised by the Financial Services Authority can now trade, and they are subject to strict guidelines on how policies are promoted and sold.

Insurers' extra costs are expected to be passed on to consumers, and a £2.80 average policy price rise is estimated.

The British Insurance Brokers' Association said the new rules would "protect consumers".

'Firms not ready'

Firms will be legally required to issue documents that clearly and simply explain policy details, provider and price.

The regulation is aimed at stopping people buying too much or too little cover.

Some 9,700 firms had last month been approved to continue trading by the Financial Services Authority (FSA).

But a survey by information solutions company Docucorp found that 92% of senior insurance managers were concerned firms would not be ready for Friday's new regulations.

The same percentage thought the FSA had underestimated the cost of implementing the new rules.

Nick White, head of personal finance at Uswitch.com, said: "The increased cost of such regulation does mean that insurance providers and brokers will look for ways to pass on the cost instead of eroding the profits they make.

"Whilst the introduction of the 'initial disclosure document' and 'statements of price' means that some of these costs will be visible, it is of course virtually impossible to see what element of the premiums charged is due to the increased cost of regulation."

More complicated?

Firms awaiting a final decision by the FSA are granted interim authorisation, and consumer groups warned that people using these firms would not be entitled to compensation if they lost money because the company folded.

Travel insurance bought with a holiday through a travel agent also does not have the protection of the FSA.

Which? magazine expressed concern that complex policies like income protection, critical illness and life insurance were now treated the same as simpler products like house and car insurance.

Louise Hanson, Which? head of campaigns, said: "This is a major concern, as it's much harder for people to choose the right product in these areas and there's a greater risk if they're sold the wrong policy."

Source: BBC