Thursday, February 17, 2005

Consumer protection - EU style

The annual chore of renewing car insurance has unexpectedly taken on an unwelcome twist, courtesy of an EU obsession for providing "a high degree of consumer protection" to the purchasers of financial products.

The particular lament in this case is that the customary two week "period of grace" has now been removed and insurance lapses on the day of expiry of the old certificate.

And, although there seems to be no dispute that this is the result of an EU requirement, there is no clear information that I can find which points to the precise law which prevents insurance companies offering the period of grace.

The best guess seems to be Directive 2002/92/EC, the Insurance mediation directive which came into force on 14 January of this year. This, the EU commission claims, "will improve choice and reinforce protection for customers while helping insurance intermediaries such as insurance brokers, banks and car dealers - to market their services across borders."

I am sure some anal retentives will argue that the "protection" afforded by this directive is well worth the hassle, but for normally dysfunctional individuals like myself, who leave everything to the last minute, and hate parting with money – mainly because, with Mrs EU Referendum and a BMW to support (to say nothing of the speeding fines), I haven't very much of it – the two weeks' period of grace has often been a lifeline which has kept me driving and within the law.

The system seems to have worked very well in the past and undoubtedly would have continued but for the intervention of the EU and it is thus a real mystery as to how the EU can claim to have improved "customer choice and protection" by removing a small but valued element of flexibility.

Furthermore, this same law, by imposing a complex and expensive authorisation process on those who wish to sell insurance, is now heavily restricting the availability of specialist insurance packages.

For instance, the British Association of Removers (BAR) is complaining that its members, who used to sell removal insurance to their clients, now cannot afford to do so because the cost and administrative burdens of registering with the Financial Services Authority (which implements the directive) makes the small-scale business unviable.

Curiously, some of the other more obvious sectors that sell insurance, such as the travel industry and the sellers of extended warranties, eg retailers, are not affected by the law, but those such as vets, surveyors, florists and many others who offer insurance in addition to their core products and services, are caught in the net.

The BAR believes that the new legislation could potentially actually have a detrimental effect on consumers, rather than the intended aim of protecting them, not least because removal firms cannot even provide advice to customers such as, "will my household policy cover the move?".

Under the new regime, only authorised firms will be able to answer this question. Other firms would be guilty of a criminal offence if they attempted to help consumers by responding, as it would be construed as giving advice.

The BAR describes the EU directive as the classic "sledgehammer to crack a nut syndrome". But then one should know by now that, when the EU offers "consumer protection", the only resort is to reach for the nearest cliché.

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