5.1 A number of respondents to the FSMA Two-Year Review consultation proposals suggested that any exemption for the promotion of employer pensions in the workplace should also cover work-related insurance products.
5.2 A wide range of work-related group insurance schemes currently exist, with varying degrees of take up. These include:
- Group life cover, which many employers take up. This includes providing death-in-service cover;
- Group income protection cover, which also tends to cover the entire workforce. This is taken up less widely than group life cover;
- Group critical illness cover, which might relate to only part of the workforce and is a relatively small market;
- Group private medical insurance cover;
- group accident, sickness and unemployment cover, which often involves making payments for up to twelve months;
- Group health cash plans, where employees receive payments for each day of illness.
5.3 Exempting the activity of communicating with employees about work-related insurance products would enable employers to provide information and advice to their employees about the types of work-based insurance schemes which exist, without the employers needing to consider taking advice about whether those communications constitute financial promotions, and without the employers needing to use an FSA-authorised person to approve or issue any promotions.
Such an exemption may, therefore, improve the flow of information and communication between employers and employees, may help employees to form and voice their preferences about what types and levels of group cover they would like their employer to provide, and may help employees make decisions about what types and levels of individual cover they would like to take out directly by themselves in order to complement any work-related group based cover provided by their employers.
5.4 Articles 24 and 26 of the Financial Promotion Order already provide exemptions from the financial promotion regime for ‘relevant insurance activities’. Under Article 26 real time promotions are exempt, and this exemption is not subject to any terms or conditions. Article 24 exempts non-real time promotions, subject to six conditions. These conditions essentially relate to disclosing who the insurer is, where they are based, and who regulates them. Articles 24 and 26 are attached at Annex B.
5.5 A ‘relevant insurance activity’ is defined as effecting or carrying out a contract of insurance as principal, and this would include negotiating or concluding a contract and paying out benefits. This does not apply to contracts which are ‘qualifying contracts of insurance’.
The definition of a ‘qualifying contract of insurance’ is somewhat complex, and may capture some elements of work-based insurance schemes. Uncertainty about the extent of the existing exemptions may be deterring some employers from communicating with their employees about work-related insurance products, especially as employers may be subject to civil and criminal sanctions if they make financial promotions which are not approved or issued by persons authorised by the FSA.
5.6 We propose that employers are provided with a new exemption from the financial promotion regime which is wholly separate from the current exemptions in Articles 24 and 26 of the Financial Promotion Order. In particular, that the new exemption from the financial promotion regime for employers should apply to both real time and non-real time communications, but without including the conditions attached to Article 24 of the Financial Promotion Order.
5.7 We suggest that the legislation specifies that this exemption should apply to all communications made by employers to their employees relating to any contract of insurance. An alternative would be somehow to specify in the legislation what we mean by work-related insurance products. This might introduce additional complexity, and hence reintroduce the issue we are seeking to address. We suggest that guidance is used instead to clarify that employers should only provide information and advice about work-related insurance products.
Safeguards
5.8 We suggest that, as a safeguard, employers are prohibited from receiving commission from a provider of insurance in the event that an employee, as an individual, enters into a contract of insurance as a result of a promotion by an employer. We also propose that employers are required, when writing to employees, to remind them of their right to seek advice from an authorised person or an appointed representative.
Chapter 1 Extending Employers Freedom – Introduction
Chapter 2 Responding to the Consultation
Chapter 3 FSMA Two-Year Review Exemption
Chapter 4 Pensions Promotions to Employees
Chapter 5 Promoting Insurance Products
Chapter 6 Employee Share Schemes and Plans
Chapter 7 Partial Regulatory Impact Assessment
Chapter 7A Options – Legislate or Not
Annex A Current Pensions Exemption
Annex B Current Insurance Exemptions
Annex C Proposed New Legislation
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