Regulator issues guidance on promotion of insurance products on price comparison sites

The FSA, which is responsible for regulating the financial services industry, said sites offering consumers the chance to buy insurance through price comparison tools could be breaking the law by helping to arrange and advise on the purchase. 

The UK's Financial Services and Market Act prohibits any person carrying out regulated activity in the UK unless they are authorised by the FSA to do so, or are exempt from that requirement under specific circumstances. Regulated activities include arranging or advising on insurance contracts. 

The Act also generally prohibits businesses communicating "an invitation or inducement to engage in investment activity" unless authorised to do so, or if " the content of the communication is approved ... by an authorised person". 

The regulator said it was worried businesses were not paying "due regard" to the interests of customers and treating them fairly; one of the principles businesses regulated by the FSA must adhere to. 

"Firms are reminded of the requirement to hold the appropriate permissions and comply with the appropriate handbook rules for any other regulated activity they are engaged in," the FSA said in its guidance 17.pdf (10-page / 228KB PDF). "This includes, but is not limited to, arranging and advising on mortgages and investment products." 

The FSA said businesses should make sure they are "appropriately authorised or otherwise exempt" to conduct regulated activities; should only enter into contracts with firms that have permission to practice the activities, and should review "disclosure documentation, sales procedures and ... terms and conditions" to comply with their legal obligations. 

The FSA said a website operator would be deemed to be 'arranging' insurance purchasing if it receives "remuneration of some kind" to provide "information about the terms and prices of insurance products and then provides the means whereby the consumer can act upon the information and transact". 

"Even where no financial benefit is derived, the firm may still be making arrangements if it brands the comparison service with its own name, endorses the service or otherwise encourages users to respond to it, negotiates special rates for users, or holds out the service as something arranged for the benefit of users," the FSA said in its guidance. 

"Where the effect of the firm’s arrangements constitutes a recommendation to purchase a specific product or products, that recommendation is likely to involve the firm giving regulated advice," it said.

Displaying a particular insurers' logo "in a manner that suggests that the particular product is to be preferred over other products" and where sites specifically recommend products over others are examples of advisory behaviour that would requires authorisation, the FSA said. 

The regulator also said that price comparison sites conducting unauthorised regulated activity could also be in breach of the UK's Unfair Terms in Consumer Contracts Regulations by including contract terms limiting their liability if things go wrong. The regulations prohibit businesses from contract terms that cause "a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer".