David Hall looks to the future and beyond for contract certainty
In the two years since the contract certainty concept was introduced by the Financial Services Authority (FSA), the industry has either met or exceeded all of the targets laid out in the voluntary timetable for compliance. So the question is, what now for contract certainty?
The Market Reform Programme office has recently issued an updated version of its Contract Certainty Code of Practice (CCCoP). This consolidated CCCoP represents the lessons learnt by the insurance industry and revises the guidance given to insurers how best to achieve compliance with the principles of contract certainty. It also makes more explicit reference to contract subjectivities by including them in the definition of contract certainty for the first time.
Insurers have utilised contract subjectivities for years, when important information has not been made available to them at the time the contract is agreed. By their very nature, subjectivities can give rise to uncertainty, particularly where the precise terms of the requirement and the consequences of failing to meet that requirement are insufficiently specified.
“Contract certainty was designed to bring an end to the industry's "deal now, detail later" mentality
The publication of this revised CCCoP, and its approval by the FSA, shows that insurance industry cannot afford to rest on its laurels. Whilst the initial targets were met with relative ease, there is a feeling that this was largely due to picking of "low-hanging-fruit". The industry should remain conscious of the fact that progress becomes incrementally more difficult as it edges closer towards total contract certainty across all business lines. The more explicit accommodation of subjectivities into the contract certainty equation will help the industry achieve this goal.
Contract certainty was designed to bring an end to the industry's "deal now, detail later" mentality. Like any wholesale cultural change, this will take time to embed itself to the point that it becomes pivotal to the way the industry operates. By working closely with both brokers and clients, insurers will be able to take a more informed approach to underwriting. Not only will this lead to more certain insurance transactions, it will also ensure that the policy issued best reflects the need of the client. That, after all, has to be the ultimate goal for both the FSA and the insurance industry.