The Consumer Duty is not the only regulatory challenge keeping advice and insurance firms up at night.
Incoming abolition of the lifetime allowance, right to be forgotten legislation in Europe and concerns around whether rules around artificial intelligence (AI) are fit for purpose are also high on firms’ agendas.
But with any new set of rules come increased costs connected with compliance and this coming year may yet bring more upheaval with a general election due.
Right to be forgotten
Peter Hamilton, head of market engagement at Zurich, told Health & Protection Consumer Duty is not the only piece of legislation on insurers’ radar.
One of these areas is European legislation in the form of ‘Right to be Forgotten’, Hamilton explains. “It is being influenced by a European Commission ‘Europe’s Beating Cancer Plan’, published in February 2021, which includes proposals for the prevention, early detection and treatment of cancer.
“It aims to allow cancer patients to ‘live long, fulfilling lives, free from discrimination and unfair obstacles’. This includes insurance and is meant to enable long-term cancer survivors to apply for insurance without having to disclose their history of cancer.
“It doesn’t formally apply to the UK, but insurers will be reflecting on how the requirements have been interpreted and implemented in different territories, by no means uniformly, and what lessons we might learn in terms of broadening access to insurance.”
Another area Hamilton points to is around artificial intelligence (AI) and whether the sector should expect greater regulatory scrutiny.
“The FCA is saying that, with the right guardrails in place, AI can offer opportunity, but are clearly and rightly alert to the risks posed by big tech in manipulating consumer behavioural biases and entrenching systemic biases.
“Financial service firms rely on a variety of third party partners in this context, and the regulator will want to be clear where responsibility lies when things go wrong,” he said.
LTA abolition and double taxation of GIP
On the thorny area of taxation, the impending abolition of the pensions lifetime allowance (LTA) announced in the Spring Budget has caused “a lot of confusion” across the sector in connection with registered death in service lump sum benefits, according to Mark Simmonds, technical manager health and benefits GB at WTW.
“Although the LTA charge of 55% no longer applies to lump sum benefits paid in excess of the LTA, tax still applies to registered death in service lump sums above what was the ‘old’ LTA limit of £1,073,100,” Simmonds says.
“The tax charge will now be based on the recipient’s rate of tax rather than the previous 55% LTA charge.”
However, death in service provided through a non-registered excepted group life policy is exempt from this tax.
“This is not straight forward and confusing for the market, and more importantly in the case of death in service, families who receive such benefits,” he adds.
But this is not the only point of confusion for the industry as Katharine Moxham, spokesperson for risk industry trade body Grid, points out.
She highlights that after six years of discussion, HMRC’s latest interpretation of the taxation of optional remuneration arrangements (OpRAs) and its updated Employment Income Manual, has reverted to its original position of double taxation on group income protection (GIP) provided via salary sacrifice.
This is despite having previously agreed in 2019 that proceeds could be paid tax-free proportionate to the part of the premium treated as a benefit in kind.
And Simmonds warns this change can can create a reluctance to explore this product further.
“When you consider the latest figures of those unable to work because of long term sickness in the UK, which now exceeds 2.5 million people based on the Office for National Statistics (ONS) analysis, this seems like a product that would be really worth considering with its focus on early intervention and rehabilitation to keep employees in the workplace,” Simmonds adds.
High strain on advisers and insurers
All of these changes to legislation are time consuming and are not without cost, advisers warn.
Alan Knowles, co-managing director at Cura, told Health & Protection: “I believe that Consumer Duty is a good thing and anything that helps to protect and benefit customers is a good thing, but more regulation ultimately leads to higher costs for firms, especially large firms and networks.
“And at some point this might find it’s way into customer’s premiums as the strain on insurers and brokers is already very high.”
Marcia Reid, non-executive director at Sherwood Healthcare, adds: “While of course we support any initiative that protects consumers, we cannot deny that these frequent changes in legislation are challenging and time consuming.
“All good advisers genuinely want to treat their customers fairly, provide best advice and best value. And living within a regulatory environment is just part of the daily joy of life in health and protection.”
Prepare for yet more change
And the bad news is more changes to legislation could well be on the way in the next year or so, Steve Herbert, wellbeing and benefits director at Partners&, warns.
“Regardless of the regulatory picture we are currently facing, it would be wise for the industry to now recognise that politics and the impending general election, now probably no more than a year away, will clearly shape the near and medium-term outlook for the financial services and insurance industry,” Herbert says.
“Traditionally the Conservatives are the party of fewer regulations and greater market freedoms. Whereas the Labour Party traditionally tend to favour more regulation and greater consumer protection,” he contends.
“Given where the political polls now sit, it seems likely that Labour may form part or all of the next UK-wide government.
“It follows that the industry should perhaps be preparing for such a change, and actively considering what more can be done to further strengthen consumer outcomes at this early stage.
“In this way, the industry may be best placed to positively influence both manifesto commitments and whichever party forms the next UK-wide government.”