Feature – New rules for healthcare and insurance sales

If you read nothing else, read this …
• The Distance Marketing Directive came into effect on 31 October this year, while the extension of the FSA’s regulatory remit to cover the general insurance and mortgage sectors takes effect from 14 January 2005. These will affect the way a variety of products and insurances are sold, including healthcare cash plans.

• The main difference for employers is likely to involve the information providers give them and how the product is communicated to staff.

• Compliance costs may force smaller cash plan providers to merge.

The Financial Services Authority’s (FSA) introduction of two new pieces of regulation that cover a variety of healthcare and insurance products has prompted much speculation about what the changes will mean for employers.

A closer look at the healthcare cash plan market shows that opinions in the industry are divided about whether the Distance Marketing Directive or the Mortgage and General Insurance Regulations will have the greatest impact on employers. Either way, what does this all mean for you? One of the main changes is that your provider or intermediary will need to conduct a fact-finding process to determine your organisation’s requirements before selling you a product.

The process though will be similar to the one you are accustomed to when buying group financial services products such as pensions. You will be issued with a ‘demands and needs’ statement outlining why particular products have been recommended. However, it isn’t mandatory for you to take it. David Lillywhite, compliance manager at healthcare provider Axa PPP, explains: “[Employers] can opt out of the need to receive a ‘demands and needs’ statement, but we wouldn’t recommend that.”

Once you have selected a product, you will need to cast a careful eye over how it is marketed to staff, particularly if you are offering the cash plan on a voluntary basis. Any information that is circulated to employees, for example, should not be perceived as you offering any kind of financial advice.

Stephen Clements, European partner at Mercer HR Consulting, says that the process of selecting and communicating a product may initially result in a heavier workload, but getting it right first time will ultimately pay off. “In the average workplace, it’s going to mean more routine processes [must be carried out] These will need to be robust and well documented. If you get the wording right under [the terms of] the Direct Marketing Directive, you can limit the impact under the FSA [regulations]”
Many of you will already routinely carry out each of these measures so the change in regulations may pass you by virtually unnoticed. This doesn’t mean they should be dismissed, however, because they could potentially change the face of the healthcare cash plan market, particularly where smaller providers are concerned. Siobhan Race, marketing co-ordinator at the Health Scheme from BHSF, explains that smaller providers are unlikely to be able to afford the costs of compliance. This will leave most with two choices: to withdraw from the market or to partner with another provider organisation. Larger providers are already likely to have the necessary measures in place.

Whatever effect the regulations have on cash plans, however, you are unlikely to experience a radical difference in the level of service you receive. What you can expect to obtain is an added peace of mind that you are buying from a reputable source. Axa PPP’s Lillywhite concludes: “For a corporate customer, it doesn’t mean much of a change. It ought to be business as usual. From 14 January 2005, intermediaries as well as insurers will be regulated by the FSA so you can tell who is authorised.”