Norwich Union will be the first major insurer to offer motor traders affected by FSA regulations a lifeline of professional indemnity cover.
Norwich Union will be the first major insurer to offer motor traders affected by FSA regulations a lifeline of professional indemnity cover.
The company is planning to launch PI cover for its motor trade customers in the Spring.
The new obligations imposed by the FSA mean that from 14 January 2005, the vast majority of motor traders who apply for direct authorisation will have a legal requirement to purchase PI cover for the sale of general insurance products such as warranty, payment protection plans, GAP or MOT insurance.
Barry Hogg, Underwriting Manager, Motor Trade at Norwich Union, explains: "Other than exiting the market, the FSA regulations give motor traders three options ranging from full direct authorisation, becoming an appointed representative of another authorised firm (where a motor trader can sell various products from multiple suppliers but commercial reality will mean that the majority will be tied to one lead Principal), or becoming an introducer only.
"As insurers and motor manufacturers are unlikely to want to take on the responsibility for regulating thousands of individual motor traders, the most practical option for those wishing to continue to sell general insurance products after January 2005 will be to become directly authorised by the FSA. This is the only option for motor trade businesses wishing to retain their current flexibility to supply a range of general insurance products to their customers."
A minimum limit of indemnity of Euro1m per claim will be required for PI cover with an aggregate period limit of Euro1.5m, or 10% of relevant annual income subject to an upper limit of Ł30m, unless the company has a comparable guarantee from an authorised firm or group company with net assets in excess of Ł10m.
Hogg continued: "As this is the first time that PI insurance has been required by motor traders, there is limited knowledge of the market’s needs. As the UK’s largest motor trader insurer and a leading provider of professional indemnity insurance, we are confident that we have exactly the right qualifications and the capacity to offer our motor trade customers long-term support in this area.
"As is often the case with complicated legislation, there is enormous market inertia over the subject. We estimate that a significant percentage of motor traders are not actively preparing for the impact of the legislation. The FSA themselves have publicly stated their concern at the low level of registration from the secondary intermediary sector, of which motor trade is a key segment.
"It is understandable that the motor trade has not fully engaged with the regulatory process, given all of the issues they currently face in their day-to-day business environment. However, time is running out fast and they need to register and apply by 13 July at the latest to guarantee that the FSA will confirm authorisation to sell general insurance products by the January deadline.
"The message for those who still haven’t done any work on this is clear. You need to act now or risk having to stop selling insurance products. There is a lot of uncertainty surrounding the issue and the actual scope of the regulations, but what is clear is that it will be a criminal offence to sell insurance products without the requisite authorisation from 14 January 2005."
For further information, ask your normal insurance adviser or refer to the FSA website www.fsa.gov.uk.
-ends-
For further information, please contact:
Debbie Wells at Staniforth on 0161 274 0100 or David Ross at Norwich Union on 08703 66 68 65/07786 526350.
Notes to editors
- Norwich Union Insurance
- Norwich Union is the UK's largest insurer with a market share of around 14 per cent
- With a focus on insurance for individuals and small businesses, Norwich Union insures:
- one in five households
- one in seven motor vehicles
- more than 800,000 businesses
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