Research finds that the burden of regulation is hindering customers getting a fair deal
The benefits to consumers of regulation are vastly outweighed by the costs, according to research commissioned by the ABI.
The research published this week, found that increased paperwork and longer call times were discouraging customers from shopping around when purchasing general insurance cover, and was detrimental to their getting the best deal.
This was especially true in the case of standard insurance products, such as motor cover, analysis noted the real cost to consumers was £360m
It also suggested that in many cases regulation was not improving customers' understanding of the products they had bought, particularly in the case of internet sales.
The ABI said that the findings showed the importance of a more risk-based approach to regulation that focused on the sectors where there was less competition to keep the market in order.
The findings will be fed into the FSA's review of the effectiveness of regulation that is due to begin next month.
The research found that regulation had an overall consumer benefit in the case of "secondary" insurance products, such as payment protection insurance (PPI) and health products such as critical illness cover.
These benefits, amounting to the equivalent of £177m in the case of PPI and £67m for critical illness, were due to regulation improving the "suitability of products" for consumers.
Taking into account the negative benefits of regulation in the sale of standard insurance products, the overall direct cost of regulation was £116m.
This does not include firms' compliance costs that are ultimately passed on to consumers.
ABI head of market regulation Chris Hannant said: "The FSA is failing to distinguish between different sectors of the market.
"The highly competitive sectors, such as motor, will regulate themselves; the FSA should focus on areas of greater risk."
Customers have their say
The ABI research found that 20% of customers said the sales process was too long. This rose to 40% in case of telephone sales and dropped to only 6% for internet sales.
Consumers wanted information on price and cover. They were not interested in status disclosure.
Some 40% of customers said they received relevant information, rising to over half in the case of telephone sales.
The ABI said the implication was that people did not know what they were agreeing to when purchasing over the internet.
