IT Spotlights: Technology - The rules are the rules

The online insurance trading environment has increasingly come to resemble a Wild West of un- or barely regulated activity. That, at least, is the verdict of the FSA, judging by a damning report into price comparison websites published during the summer.

The study highlighted how comparison websites are routinely misleading customers, citing how many had failed to comply with its rules governing insurance contracts.

Specific problems included aggregators failing to give consumers the opportunity to disclose all material facts, such as by pre-populating forms with default answers. The result was that consumers were potentially providing misleading information, invalidating subsequent claims and triggering refusals by insurers to pay out.

Following this report, the FSA has told the aggregators they must meet its regulatory requirements, including having appropriate permissions and adhering to its Insurance Conduct of Business Sourcebook (ICOBS).

The guidance will be music to the ears of those brokers who feel they have been competing with the aggregators for years while having to meet much higher regulatory standards.

E-trading troubles

However, while they have escaped the FSA’s wrath, brokers are not immune from the compliance issues involved in operating in an increasingly online trading environment.

Compliance consultant Robin Wood flagged up the potential e-trading pitfalls for insurance brokers at Insurance Times’s most recent IT Pack event in Leicester.

He warned brokers that selling insurance online increases the risk that they could get sued, fearing that under-pressure brokers could be tempted to cut corners in order to deliver a cost-effective product.

Brokers are increasingly mindful of the competitive threat from cheaper online competition, even in the commercial lines space, which they have traditionally dominated.

Research carried out by Datamonitor for its 2011 commercial lines distribution report showed a sixfold increase in the proportion of SME customers who are confident about using the web to buy insurance.

This figure jumped from 6.5% in 2009 to 39.5% last year. Many have not yet switched, however, judging by figures from the same report showing that brokers continue to command 81% of the commercial lines distribution market, a proportion that has barely budged from the previous year.

Fools rush in

Nevertheless, Wood worries that brokers will be reluctant to spend more than a couple of hours arranging a small-scale commercial combined package product, on which they are likely to make £150-£200 worth of commission.

“Online is about doing it quickly and making money out of it,” he says. “They are going to delegate that to some junior person.”

Wood fears that sales can be rushed, leading to clients suing when a claim is denied, on the grounds that they were not given enough information to fully understand the risk. “In terms of gathering info, brokers really need to make sure that their staff are really competent. If you have junior members of staff, you have to make sure that the right questions are being asked.”

Meanwhile, he adds, if brokers have developed their own systems for inputting data, they need to ensure that they have enough drop-down options to deal with the complexities of the products they are selling.

Biba head of training and compliance Steve White agrees that brokers need to be on top of any lack of understanding on the part of their client. And he warns that brokers cannot blame the shortcomings of their online systems.

“Statements that systems do not allow you to do things will not stack up,” he says. “Change the system: the rules are the rules. The FSA rules apply irrespective of the way you sell the product.”