New regulations coming into force next month for the insurance sector from the FSA include guidelines on employee training and competence. Jane Owen from Skillsarena explains how companies are affected and how they can ensure compliance.

For anyone involved in general insurance 14 January 2005 is a significant date in the diary. This is the day that self-regulation comes to an end and the Financial Services Agency takes on formal responsibility for all businesses in the sector. Insurance and financial services companies are now obliged to ensure consumers receive first class service from their advisory teams. The new regulations will also establish standards for accountability and staff competence.

These regulations obviously affect insurance providers and brokers, but can impact on all companies that sell insurance indirectly as part of their main services, such as car dealers, dentists, vets or banks. There are various exclusions in place for some of these organisations, for example if they don’t specifically recommend a particular product, but all companies involved in insurance need to be aware of the changing environment and how it will affect them.

In its Handbook of Rules and Guidance, the FSA states that it will: “Place more explicit responsibility on the management of insurance firms to maintain adequate standards and processes in these areas and to carry out their obligations towards their customers.”

In essence, the new regulations set standards for the way that organisations operate. They establish ‘best practice’ guidelines - outlined in the FSA’s Consultation Paper 160 - in several areas, one of which is employee training and competence.

Training and competence
When it comes to changing business practice and procedure it is often the ‘people’ aspect that is the hardest to manage. Once new internal business processes have been put into place, tracking them is relatively straightforward. However, people are constantly moving, changing roles and developing making it more difficult to constantly monitor them.

Nevertheless, from January, the FSA demands that companies know that their employees are competent and able to give clients the right information at all times.

The FSA’s Training and Competence Sourcebook states: “It is the responsibility of all firms to be sure that individuals are (and remain) competent for the work they do, that they are appropriately supervised and that their competence is regularly reviewed, and that their level of competence is appropriate to the nature of the business.”

That means that everyone, from senior advisors and management down to call centre staff, who are at the front end of interaction with customers, will be affected.

The Sourcebook goes on to address five main areas that businesses in the insurance sector should consider: recruitment, training, attaining competence, maintaining competence and supervision.

Monitoring skills
When insurance companies recruit new members of staff they need to think not only about the requirements of the role, but also each candidate’s knowledge, skills and training and make sure the two match up.

The problem here, of course, is proving a candidate applying for a job actually has the skills, experience and knowledge they claim to have.

Under the new regulations firms will need to establish correct knowledge and training levels of their potential recruits. Some firms will rely almost entirely on referencing to do this - asking candidates to prove, from previous experience and results generated, that they are competent and able to carry out the specific tasks that form their new position.

However, past performance is not always a good indicator of future achievements. Without a formal method of proving and updating skills, it can be hard for companies to choose people with confidence.

As well as specifying that organisations should look at the previous training each candidate has received, the FSA also requires them to consider the nature of that training. The needs of each member of staff must be judged on a case-by-case basis, so that everyone receives training that is timely and relevant to them.

The FSA does not prescribe how this should be achieved, and there are no FSA exams that employees must pass, but some financial institutions, especially the larger ones, decide to set their own qualification levels that staff must reach.

Assessing competency
Once employees have undergone the necessary and appropriate training, it is vital that their competence levels are tested and assessed. Under the new rules, no employee can undertake unsupervised activity or oversee any work until they have been certified as competent to do so.

As a result of these recruitment, training and competency requirements, many firms are looking for new ways of testing their staff’s skills. One method is online testing. Companies can design assessment modules to meet their own requirements and advances in technology mean that these can now include audio and visual elements to replicate real-life work situations, rather than being a straightforward exam format.

Unlike the more traditional assessment methods, employees can sit these tests online at their desks, minimising the amount of income-generating time lost, as well as providing highly desirable flexibility. The tests also indicate where a skills shortage exists – both at individual and company-wide level – and therefore which training is actually required.

By purchasing annual software licenses rather than a series of training sessions, the tests can be available throughout the year, and taken any number of times, which can help with the next requirement: measuring competence.

It is not enough to show that staff are competent on a one-off basis, to comply with the FSA, businesses must look at employee competency in the long term. Companies must have a structure that staff stick to, to protect themselves from any legal fall-out. Online tests make this a relatively straightforward activity, particularly if they offer a reporting tool which can keep a record of scores achieved and analyse trends over time.

When it comes to the supervision of employees, the FSA says: “There must be appropriate supervision of employees, including those who are attaining competence and those who have been assessed as being competent.” This implies that employees must always be adequately supervised, even once they have proved their ability to do their jobs.

Consequences
By putting these regulations in place, the FSA aims to set the goalposts of employee training and competence for firms in the insurance industry. However, the decision of how compliance should be achieved, and the arrangements to ensure they succeed, is left to the individual organisations.

The FSA does make clear what the consequences of ignoring the new rules will be. Non-compliance can result in fines and other financial penalties; individuals may be banned from practicing and a business may face the cancellation or variation of its permission. In extreme circumstances, the penalty is jail.

From 14th January 2005 it will be a criminal offence to undertake general insurance business without being FSA authorised. The deadline is only a month away, so companies must start acting immediately if they have not done so already.

• Details of the new regulations can be found on the FSA website at www.fsa.org.uk or contact the helpline on 0845 6055 525.