Deregulation of insurance sales by Removal and Self Storage companies to their
customers came into effect in 2009.
In this note we provide a description of the legislative position and the
specific position for BAR members. Within this note we include links to further
relevant documents, including the BAR’s Insurance Consumer Code of
Conduct. In particular we provide some useful information about the open cover
approach.
The Options
When arranging protection for your customers’ goods there are now four options
available to you:
-
Offer “Standard” Liability, also
known as Declared Value option (use BAR “Liability Conditions” or variation
agreed by your insurer). You offer customers the option to pay more for
increased liability accepted by you under contract. No
insurance is sold and no insurance advice is given. Your customer has no
rights under your insurance policy. You cannot represent this solution as
selling insurance.
-
Offer “Insured Remover” option
(use BAR “Insured Remover Conditions” or variation agreed by your insurer).
You offer to buy insurance to cover your customer’s goods. No
insurance is sold and no insurance advice is given. Your customer has no
rights under your insurance policy. You cannot represent this solution as
selling insurance.
-
Be FSA regulated but this is
only allowed if you are undertaking activity that is not deregulated.
If selling a dedicated insurance product to your customers you can be authorised by FSA to do so. See section below for what would
constitute a dedicated insurance product and activity that is not deregulated.
-
Extend rights under your open
cover insurance policy to your customers. To do this you must have an
appropriate insurance policy and appropriate documents to issue to your
customers. You cannot offer insurance advice to your customers. You must
also:
Under each option your insurance
policy must meet BAR’s Minimum Insurance Standards.
What is an open cover?
An open cover is a Marine insurance contract that operators hold to
insure, amongst other things, the goods they handle on behalf of their
customers. The policy will generally be on an adjustable premium basis, possibly
monthly declarations, reflecting values and risk exposure during the term of the
policy.
Operators need a suitably worded open cover policy to allow them
flexibility to meet individual customer requirements. Operators are not be able
to vary cover in an ad hoc way. Operators who wish to vary the cover between
that bought and sold should ensure they have their insurer’s agreement to do so.
Here are examples of some things you could do under an appropriate open cover
arrangement:
| Removing the pairs and sets clause when
extending cover to the customer |
ü |
| Offering cover with a smaller excess
than is stated on the operator`s policy |
ü |
| Adding administration charges on top of
insurer’s premium and representing it as one premium charge to the
customer |
ü |
When using the open cover
approach what documents does an operator need to give their customer and what
must these documents say?
Operators need a document that provides details of the insurance contract
being extended to the customer. BAR’s Insurance Consumer Code
of Practice states that the member must provide a full explanation
of the policy conditions, restrictions and exclusions to the customer.
This could be done in the form of a customer insurance certificate.
The operator must also provide the customer with details of the process to
follow in the event of any insurance related dispute. The operator must have a
complaints procedure satisfactory to the Financial Ombudsman Service (FOS),
including the right to ultimately take the complaint to FOS.
We can assist any BAR members who adopt the open cover approach
with their customer facing documents. We can also advise you on setting up a
complaints procedure satisfactory to FOS and explain more about FOS and how they
operate.
What activity will continue to be regulated?
Where an operator has to negotiate with an insurer, or make a special
arrangement for a customer, outside of that which can be offered automatically
under the operator’s open cover, then this is activity
that is regulated. In effect the operator is selling a
dedicated insurance product. In this instance he is acting as an agent for the
customer in arranging insurance. The boundary between what is allowable under an
open cover arrangement and will not be regulated and activity that will
continue to be regulated, which may include giving some forms of advice, may
sometimes be unclear.
Firms who qualify to be regulated will for the
vast majority of their insurance sales be undertaking deregulated activity, per
open cover approach above.
When to charge Insurance Premium Tax (IPT) and Value Added Tax (VAT)
Appropriate VAT and IPT charging are different under the options available.
Because VAT is currently levied at 17.5% and IPT on marine insurance is 5% the
different approaches described above may result in a different tax charge and
ultimately a greater or lower cost for the solution each operator chooses.
| FSA regulated sale or open cover
approach |
For insurance contracts provided to private
individuals IPT will be applicable to the whole insurance charge made to
your customer. This is the case whether the operator receives commission
from their insurer and / or adds a fee as part of the charge made to the
customer and whether the sale is regulated or under an open cover
(unregulated) arrangement. However, for contracts provided to businesses
IPT will not apply to any fee element of the charge you make. |
| Liability or Insured Remover option |
The operator pays IPT to their insurer on
the premium charged to them. As they are not entering any contract of
insurance with their customer no IPT should be added to any charge made
to the customer. If the operator is VAT registered then any charge made
to the customer for agreeing to increase your liability, whether backed
by insurance or not, should have VAT added. |
If you are in any way unsure how you
should be charging tax to your customers please talk to us or a professional
adviser. Getting it wrong can be very costly.
Talk to us
Whether you want to be sure that you are compliantly implementing your current
approach or want to understand the alternative available, talk to us. We have
developed solutions and availability of advice to respond to all perspective and
circumstances.
Contact your usual member of the Pound Gates team
01473
346046
info@poundgates.com
www.poundgates.com
Date Published: 22nd February 2010
