New regs change sale of small business tax insurance

The new regulations from the Financial Services Authority have caused some trade associations and other unregulated bodies to re-evaluate the way they sell insurance products to their members and customers.

Professional Contractors Group

The Professional Contractors Group (PCG) has responded to the incoming regulations by introducing tiered membership with a 'bundled package' and raising its joining fee for this to £300 per couple.

The new level of membership includes protection for PAYE visits. This additional service replaces an insurance product that will no longer be sold directly or separately due to the impending regulation on insurance by the Financial Services Authority.

FSA regulations

However, the FSA regulations, which are aimed at protecting customers from unregulated insurance sellers could leave them more vulnerable in some circumstances, as organisations try to find ways to continue providing the service without being regulated.

One compliance officer pointed out that in some circumstances the individual might not hold the insurance policy as this would rest with the organisation. The individual would therefore be reliant on the 'discretion and continuing existence' of the organisation to make a claim on his or her behalf.

Irony

Steve Wade, the FSA compliance officer at Qdos Consulting said: "Many organisations have previously enjoyed healthy income by acting as insurance intermediaries. Only those that embrace regulation will be able to continue such activities.

"FSA is not an exclusive club, but does require some commitment to proving that operating procedures and selling messages are sound. Many who choose not to become regulated are seeking ways to maintain income as an intermediary by restructuring their affairs. The Financial Services Authority are currently scrutinising such avoidance mechanisms in order to protect the end purchaser.

"The main difference in gaining protection through such an arrangement is that the member will not hold an insurance policy. There may be a policy held by the organisation. The member is reliant on the discretion of the organisation to claim on its behalf and of course the existence of the organisation at the point that the claim needs to be made.

"The organisation cannot make promises to the member that mirror the insurance contract as this activity will be deemed as falling under the regulatory scope. The irony is that the introduction of regulation will effectively reduce consumer protection in these situations.

"Where the consumer holds an insurance policy, a contract is bound directly with an underwriter. If an intermediary liquidates, there will be no effect on that contract of insurance. Underwriters need to prove liquidity ratios that ensure there are sufficient funds to meet all claims. This determines their capacity or volume of business that they can sell."

UKTECH

UKTECH has also had to consider its position regarding the new regulations and has arranged with Qdos Consulting, who are fully approved with the FSA to continue the sale of Freelancers Outside IR35 and other protection packages without any change to the costs or status of the policies, so the individuals remain the policy holder of a fully-underwritten and insured product.

In these circumstances the policy remains in the control of the individual.