New move to protect insurance buyers

You've heard about the new chip and pin credit card system - but what about another financial revolution that is about to go live?

On Friday, Britain's financial watchdog takes over regulation of the multi- billion-pound general insurance industry. But if that sounds like merely some tedious bureaucratic initiative of interest only to the likes of Norwich Union, think again.

The Financial Services Authority is to take on the policing of everything from home, car and pet insurance to dental plans, warranties sold by car dealers, and the freebie insurance perks that are often thrown in when people take out a credit card or open a current account.

The new rules mean that the public will be provided with better information when they buy insurance, and will have more rights if things go wrong. They will also make it easier for consumers to shop around.

A three-month national press advertising campaign to highlight the new system kicks off on Monday.

The new regime should make it much harder for companies to get away with burying exclusions or other nasties in the small print. It could spell the end of "add-on" insurances such as payment protection insurance, which produce big commissions for the seller but deliver few benefits for the buyer.

Britons buy billions of pounds' worth of insurance policies every year. Tens of thousands of firms sell them, though for many - such as car dealers and vets - insurance is a peripheral activity.

After January 14 it will be illegal for a firm to sell regulated insurance to a consumer if it has not applied for authorisation or become a so-called "appointed representative" of a directly authorised company. Anyone not authorised who sells insurance after that date could be fined or even jailed.

But with just days until lift-off, the FSA is concerned that many firms have still not applied for authorisation. There are other possible storms brewing too.

What sorts of insurance are covered by the new regime?


Home, car and pet insurance will all be covered. So will payment protection insurance, which is often sold to people when they take out a mortgage or loan, and critical illness cover.

Travel insurance sold directly to people by insurers will be policed by the FSA, but holiday insurance sold as part of a package by travel agents and tour operators will be exempt from the new rules.

Also covered are:

· household removals companies that offer insurance to cover people's possessions while they are in transit

· dentists who advise on, or arrange, dental insurance for their patients

· property managers, who often arrange insurance on behalf of their tenants

· veterinary surgeons who help pet owners buy insurance or claim on policies

· car dealers selling used car warranties

However, extended warranties on electrical goods is another controversial type of cover that has escaped regulation.

How will I benefit?


Consumers will get clear information on precisely what is and isn't covered before they buy insurance in the form of a policy summary bearing the "keyfacts" logo. Whatever the policy you're taking out, you'll get one of these useful summaries.

This tells people who the insurer is and what the insurance covers. It alerts them to any important or unusual exclusions, and who they should contact if they want to make a claim or a complaint.

In addition, consumers will have the right to cancel a policy up to 14 days after they have taken it out.

If you have a problem you can't resolve, you will now be able to take it to the Financial Ombudsman Service. And if a company goes bust and you lose money, you will be able to get compensation from the Financial Services Compensation Scheme.

Are there any downsides?


All firms applying for authorisation must pay a fee, and the total cost of regulation has been estimated at £215m. With 77m general insurance policies taken out or renewed each year, if the entire £215m bill was passed on to consumers, the cost of each policy "will rise on average by £2.80," says the FSA. So we will probably all have to pay a bit more for our cover.

Also, firms that apply at the last minute or who have been refused permission to operate but haven't yet exhausted their rights of appeal, will be able to continue trading until a decision is reached. These firms will offer customers "nearly as much protection" as the fully authorised ones, but if any of them go out of business before they are fully authorised, people will not be entitled to compensation from the official scheme for any losses they have suffered.

Who are the laggards?


Up to 4,000 firms have still not applied for authorisation after initially registering. The three "hot spot" sectors are motor dealers, removals firms and property managers - so if you are going to be using any of these in the coming weeks, check whether they are covered before you sign up.

The regulator says it will be warning consumers of the dangers of dealing with businesses that are unauthorised after January 14. "If you buy an insurance policy from an unregulated firm after January 14, it won't be covered by our rules."