Insurers succeed in lobbying FSA amid fears of rising administration costs and of policyholders being left without cover
The FSA has given insurers permission to continue their current practice of tacitly renewing certain policies without the explicit consent of the policyholder.
Under the FSA's original rules, insurers would have been unable to automatically renew distance policies, such as those concluded over the telephone, by post or over the internet, without the policyholders' consent.
But following lobbying by the insurance industry, the FSA has amended its conduct of business rules to permit the continuance of tacit renewals.
Insurers were concerned at the additional expense involved in seeking policyholders' consent to continue the policy. This could amount to millions of pounds for the industry.
Many distance contracts are paid by direct debit, and insurers also feared that a large proportion of policyholders would assume their direct debit payments would continue and would fail to renew their cover without realising it.
Royal & SunAlliance financial services markets act programme director Blyth Morris said: "70% of motor policyholders pay by direct debit monthly payments and 50% may not have realised they need to agree the renewal.
"It could have been a PR disaster for insurers and the FSA. Imagine if a policyholder was in a car crash and found he wasn't covered because the policy hadn't rolled on."
An FSA spokesman said: "We have listened to the industry and come up with a pragmatic approach."
These rules come into effect on 9 October, with the implementation of the Distance Marketing Directive.
