Article date: 25 March 2004
Norwich Union will be the first major insurer to offer motortraders affected by FSA regulations a lifeline of professionalindemnity cover.
The company is planning to launch PI cover for its motor tradecustomers in the Spring.
The new obligations imposed by the FSA mean that from 14 January2005, the vast majority of motor traders who apply for directauthorisation will have a legal requirement to purchase PI coverfor the sale of general insurance products such as warranty,payment protection plans, GAP or MOT insurance.
Barry Hogg, Underwriting Manager, Motor Trade at Norwich Union,explains: "Other than exiting the market, the FSA regulations givemotor traders three options ranging from full direct authorisation,becoming an appointed representative of another authorised firm(where a motor trader can sell various products from multiplesuppliers but commercial reality will mean that the majority willbe tied to one lead Principal), or becoming an introducer only.
"As insurers and motor manufacturers are unlikely to want totake on the responsibility for regulating thousands of individualmotor traders, the most practical option for those wishing tocontinue to sell general insurance products after January 2005 willbe to become directly authorised by the FSA. This is the onlyoption for motor trade businesses wishing to retain their currentflexibility to supply a range of general insurance products totheir customers."
A minimum limit of indemnity of Euro1m per claim will berequired for PI cover with an aggregate period limit of Euro1.5m,or 10% of relevant annual income subject to an upper limit of £30m,unless the company has a comparable guarantee from an authorisedfirm or group company with net assets in excess of £10m.
Hogg continued: "As this is the first time that PI insurance hasbeen required by motor traders, there is limited knowledge of themarket’s needs. As the UK’s largest motor traderinsurer and a leading provider of professional indemnity insurance,we are confident that we have exactly the right qualifications andthe capacity to offer our motor trade customers long-term supportin this area.
"As is often the case with complicated legislation, there isenormous market inertia over the subject. We estimate that asignificant percentage of motor traders are not actively preparingfor the impact of the legislation. The FSA themselves have publiclystated their concern at the low level of registration from thesecondary intermediary sector, of which motor trade is a keysegment.
"It is understandable that the motor trade has not fully engagedwith the regulatory process, given all of the issues they currentlyface in their day-to-day business environment. However, time isrunning out fast and they need to register and apply by 13 July atthe latest to guarantee that the FSA will confirm authorisation tosell general insurance products by the January deadline.
"The message for those who still haven’t done any work onthis is clear. You need to act now or risk having to stop sellinginsurance products. There is a lot of uncertainty surrounding theissue and the actual scope of the regulations, but what is clear isthat it will be a criminal offence to sell insurance productswithout the requisite authorisation from 14 January 2005."
For further information, ask your normal insurance adviser orrefer to the FSA website www.fsa.gov.uk.
For further information, please contact:
Debbie Wells at Staniforth on 0161 274 0100 or David Ross atNorwich Union on 08703 66 68 65/07786 526350.
Notes to editors
- Norwich Union Insurance
- Norwich Union is the UK's largest insurer with a market shareof around 14 per cent
- With a focus on insurance for individuals and smallbusinesses, Norwich Union insures:
- one in five households
- one in seven motor vehicles
- more than 800,000 businesses
- Norwich Union products are available through a variety ofdistribution channels including brokers, corporate partners suchas banks and building societies and Norwich Union Direct.
- Norwich Union’s news releases and a selection of imagesare available on the Aviva internet press centre atwww.aviva.com/media.
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