From Pound Gates – official
insurance broker of the National Guild of Removers & Storers
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 in
particular we provide some useful information about the open cover
approach. There is no doubt for many Guild members deregulation provides a great
opportunity to enhance income when providing a service to your clients.
The Options
When arranging protection for your customers’ goods there are now four options
available to you:
-
Offer “Standard/Extended”
Liability or Declared Value option. You offer customers the option to pay
more for increased liability accepted by you under contract and use Guild
Standard (Extended) Liability conditions. 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/Contractor” option. You offer to buy insurance to cover your
customer’s goods and use Guild Insured Remover conditions. 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 being 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 can offer limited insurance advice to your customers. You must
also:
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 not be able
to vary cover in an ad hoc way. Operators who 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. Operators should provide customers with an
explanation of policy conditions, restrictions and exclusions. 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 clients 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 would 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, is may sometimes be unclear.
Firms who qualify to be regulated will for the
vast majority of their insurance sales be undertaking what would otherwise be deregulated activity, per
open cover approach above. If you are FSA authorised all activity
continues to be regulated.
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/Contractor
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 Neil Matthews,
Rob Thacker or your usual member of the Pound Gates team
01473
346046
info@poundgates.com
www.poundgates.com
Date Published:
22nd February 2010
