Golden rules? John Lewis of the BVRLA speaks out on �� implementing regulations

You may not think that the mis-selling of pensions, mortgages and life insurance has much to do with daily rental customers bearing greater levels of risk than they might wish to. But it certainly does. Let me explain.

There can be few among you who are not aware of the scandals surrounding past selling of financial services such as those listed above. People were given promises, especially with endowment mortgages, of financial performance from their chosen instrument far beyond the ultimate cold reality. Those companies that actively pursued such policies have themselves been touched with the reality of swingeing fines. But an aftertaste is always left behind, usually in the increased burden of regulation raised to ensure that such a thing can never happen again. Of course, it's all done in the name of consumer protection and that's not a bad idea as such.

However, when it comes to regulation, politicians and civil servants have a heavy touch. In their honest desire to achieve fairness for consumers, all too often they impose regulation that stifles a sector and may even make it uneconomic for reasonable and genuine services to continue. Of course, they have to try to take account of a wide range of circumstances in framing regulation but they also need to listen to bodies such as ourselves who can often prevent the unintended consequences of over-regulation causing customer detriment prior to the legislation being enacted.

In the case of the new insurance selling regulations ,that did not happen. The original legislation came out of Brussels from where some 75% of all new UK legislation now comes. But when being implemented into the UK ,it became 'gold-plated' and now reaches far beyond the problem it was designed to resolve.

Companies selling insurance--any insurance--in the UK have to be properly authorised. They've had to comply with tough legislation that includes a high level of training for their staff along with a strict regime of regulation that minutely controls their activities.

In the car rental industry, we fought long and hard to win exemption for a majority of so-called 'insurances'. Baggage and personal injury insurance for example, where sold as a part of the rental package, which now lie outside the scope of the regulation. But that still leaves some valuable, self-chosen products in scope. Products such as overseas breakdown and allied personal insurance and goods in transit are both caught and, in order to sell these, rental companies have to be authorised.

To meet the training requirements to be able to offer these very low-volume products takes around eight hours of tuition for each member of staff. That's a big investment in time to sell a product for a low overall return and many companies are not willing to put in that sort of money for such a small profit. So they don't. But that means they cannot sell the product; this reduces customer choice and that, surely, was not the intention of the legislators in the first place.

It's the law of unintended consequences in full flow.

To put this more into context let me give you a wider application. Take the used car dealer operating in, shall we say, the lower end of the market, and offering vehicles in the sub-1500 [pounds sterling] range to a local community. He's been around for quite some years, offers a good deal to his customers, probably he's even a member of the local Chamber of Commerce. Now he's hit with regulations that forbid him to sell products such as payment protection and even externally sourced warranties, unless he goes through the tortuous process of becoming authorised.

What does he do? All too often he's going to say: "My main business is selling cars. Yes, I'd like to sell insurance products but it simply isn't worth my while." And he withdraws those products. Products that his customers would like and probably need to have, such as payment protection.

What we are increasingly seeing is regulation that, far from protecting customers, is all too often having the opposite effect. In the case of insurance it is leaving customers potentially exposed to risks they would often rather not run. The sledgehammer of over-regulation has all too easily cracked the nut of consumer protection.

COPYRIGHT 2005 DMG World Media Ltd.
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