Consulting » Fleet Decisions – Follow the rules.

From January 2005, companies that are not registered to sell insurance with the Financial Services Authority (FSA) will not be permitted to sell or offer advice on products. This affects everyone involved in insurance-based products – from retailers and repairers to car makers and fleet leasing companies. Key areas include the supply of warranties, finance and guaranteed asset protection (GAP) insurance. Suppliers wanting to offer these products need to get their applications to the FSA by 13 July to guarantee authorisation by the 14 January 2005 start date.

This is a huge task, as the application must include details of training and competence, corporate governance, senior management systems of control, complaints handling and personal insurance cover. Under the Financial Services and Markets Act 2000, the FSA has six months to process the application.

The key factor influencing the government’s decision to regulate general insurance has been the need to comply with European legislation, particularly the Insurance Mediation Directive, which aims to create a single market for insurance across Europe. Until now, outlets have been able to sell insurance and customer protection products without a single regulatory body policing their activities.

To co-ordinate the management of the new initiative, the FSA has created a dedicated division known as ‘High Street Firms’ to deal with the thousands of companies that provide general insurance as part of another main business.

“The regulatory regime for general insurance is in place,” says High Street Firms director Sarah Wilson. “Insurers and intermediaries need to get cracking on their preparations for regulation.

“Insurers will need to satisfy themselves that all the links in their supply chain affected by regulation become either authorised or have an appointed representative. They will not be able to do business with unauthorised intermediaries. Importantly, this includes second intermediaries such as motor dealers that sell insurance as an adjunct to their main business,” she explains.

For fleet operators the ramifications are huge as their service supply arrangements could be severely interrupted by the new arrangements. Retailers have three options: 1) become fully authorised to sell and advise on all insurance-based products; 2) become an appointed representative (AR) for one or more providers to sell only the products they supply; or 3) become an ‘introducer’ and have a passive display of leaflets promoting insurance-based products. Leasing companies wanting to sell insurance products are likely to follow the AR route.

“Leasing companies are likely to take the appointed representative route so they become a seller on behalf of an insurer (known as a principal) authorised by the FSA,” says Mike Waters, head of market analysis for contract hire and leasing firm Arval PHH. “Becoming authorised directly takes a lot of paperwork. Fleets should ensure their insurers are aware of these regulations and are taking steps to meet these new rules,” he says.

Although fleet suppliers are currently looking at how they deal with the regulations, company executives need to keep a close watch on how this might affect their operations. For example, choosing each of the three options creates different limitations or opportunities for companies that could affect the services they supply fleet operators.

“The changes to the FSA regulations will have a wider ranging impact on the fleet industry than many leasing companies are predicting,” says Andrew Dawson, marketing programmes and service development manager at leasing company Interleasing. “This is because the role of leasing companies has evolved from just supplying vehicles to playing a vital role in the fleet management process, offering services such as accident management, GAP and early termination of insurance, short-term hire and breakdown assistance. Because many of our clients choose to outsource their fleet management and added value services to Interleasing, we touch on administrating insurance at many stages, particularly with our accident management service,” he says.

For that reason, Interleasing believes that simply becoming an AR to an insurer is not an option. The company has been working since October 2003 towards becoming authorised by the FSA to advise on insurance-based products. “If we are to offer our clients a full range of fleet management services with independent advice, then we wouldn’t want to be tied to just a few suppliers on an AR basis,” explains Dawson.

“This is a big challenge for Interleasing. It is not a matter of simply filling in the form to become registered but ensuring that every part of the business is compliant with the FSA’s guidelines. Although this is a time-consuming administrative process for Interleasing, the company believes the move will improve the service levels it can offer its customers.

Manufacturers are also taking action, anticipating full compliance by their dealer network, particularly because that is a key source of profit.

Those which don’t comply will be frozen out of the sales market in some cases, which could affect fleet customers.


Companies can be directly authorised by the FSA, or they can become an appointed representative (AR). If they go for the second option, they will be regulated by a principal – a general insurance provider authorised by the FSA. It is more likely to happen in industries where insurance is not a core source of revenue, although the FSA does expect some smaller companies to seek AR status.

What is an appointed representative?

A company or an individual must make a contractual agreement with its chosen principal (assuming the provider is willing to appoint an agent) to become an appointed representative (AR). This will enable the AR to undertake certain regulated activities without being authorised directly by the FSA.

To enable the principal to carry out its supervisory duties, the AR must be prepared to provide access to staff, premises and records. An AR can have more than one principal but a multiple principal agreement must be in place first – a move that would create complex issues for principals.

What is a principal?

A principal is an authorised insurance-based product provider that takes on regulatory responsibility for contracted AR firms and individuals.

It is the principal’s responsibility to report its contractual agreement with an AR to the FSA for inclusion in the FSA register.

Principals will have the controls and resources to ensure that ARs are fully compliant with FSA rules. For example, they will need to ensure the AR is ‘fit and proper’ to deal with the client, and is able to deliver the same level of protection to clients as if clients had dealt with the principal itself.