Earlier this month, the PRA completed a consultation on Policyholder Protection (CP21/14). New rules are expected to take effect in July 2015.
Background
The consultation paper sets out proposed changes to PRA rules on insurance policyholder protection.
The aim of the new proposals is to align the existing compensation rules more closely with the PRA’s statutory objectives and to secure an appropriate degree of protection for those who are, or may become, policyholders.
The proposals directly affect the Financial Services Compensation Scheme (FSCS) which provides compensation in the event of the failure of a firm.
This consultation also forms part of a series of consultations aimed at replacing the Compensation sourcebook (COMP) and those parts of the Fees sourcebook (FEES) applicable to FSCS levies.
The PRA expects to publish a statement of policy, a summary of the consultation feedback, final rules and an updated statement of policy for the Financial Services Compensation Scheme in the first half of 2015.
The new rules are expected to take effect in July 2015.
Changes to FSCS insurance limits
There are currently two levels of FSCS compensation for insurance products:
a) 100% cover for certain compulsory insurance (Higher Level Protection); and
b) 90% cover for all other insurance (Lower Level Protection).
The PRA is proposing to extend Higher Level Protection to the following areas:
- Annuities;
- Death or incapacity benefit;
- Pure protection; and
- Professional Indemnity Insurance.
Successor firms
The PRA is proposing to provide protection for policyholders of a (non-PRA-authorised) successor firm where the insured event which gave rise to the (protected) claim occurred before the transfer of liabilities between predecessor and successor.
Assignment and subrogation
The PRA proposes giving the FSCS the power to provide that the payment of compensation by the FSCS shall have the effect of automatically subrogating the FSCS to the claimant’s rights against the insurer, a successor and/or against any third parties as an alternative to assignment.
The PRA is also proposing a rule whereby payment of compensation by the FSCS has the effect of automatically assigning to the FSCS the claimant’s rights against insurers, successors and other third parties.
These powers may be used separately or in combination, depending on circumstances and should enable the FSCS to maximise its operational efficiency.
Other proposals
The PRA is also proposing various minor amendments to rules regarding:
- verifying eligibility for payment of compensation;
- paying compensation where the policy is held on trust or by two or more joint policyholders; and
- the power to require information from insurers.