By Julian Knight
BBC News personal finance reporter |
 Some car dealers have baulked at "gold plated" regulation |
If you are one of an estimated 35 million UK consumers who buy insurance each year you will see major changes from Friday.
Consumers who feel they have been badly treated by their insurer will have the right to take their case to a powerful industry ombudsman.
Customers' premiums will be protected by a compensation scheme, just in case the insurer goes under.
In addition, insurers will no longer be able to bury nasty policy exclusions in the small print.
Instead policy exclusions and the full cost of the insurance will have to be presented to the consumer before they buy.
However, controversially, the reforms will not apply to holiday insurance when sold through a travel agent.
The reforms will see the existing method of self regulation swept away.
Replacing it will be tough new regulation by the Financial Services Authority (FSA). Under the new regime, most businesses selling insurance will have had to prove their fitness to trade.
But up to 4,000 businesses are expected to miss Friday's FSA deadline for being authorised to sell insurance.
As a result, consumers risk buying policies from unregulated firms and thereby missing out on the extra protection and greater clarity the new regime offers.
Plain English
From Friday, firms selling most types of insurance - including home, motor, medical and some types of travel cover - will have to give consumers a key facts document.
This document will outline, in plain English, the full cost of the insurance and any significant policy exclusions.
The idea is that fewer consumers will buy overpriced, inadequate or inappropriate cover.
"This will raise the professionalism of the whole industry and consumers will be able to better compare products and price," Eric Galbraith, chief executive of the British Insurance Brokers' Association (BIBA) told BBC News.
Huge task
 | What insurance regulation means for you Consumers to be given a document outlining any important policy exclusions Insurance salespeople will be duty bound to offer only "suitable policies" Consumers will be able to take complaints to the Financial Ombudsman Services If an insurer or broker goes bust consumers will be able to claim compensation Motor, home, medical, loan payment protection and pet insurance will all be regulated. Holiday insurance when sold by a travel agent and electrical extended warranties will not be regulated |
The new regulatory regime also promises greater consumer protection.
Policyholders will be able to take disputes with insurers to the Financial Ombudsman Service (FOS).
The FOS will adjudicate on disputes and can order compensation to be paid to wronged consumers.
In addition, if the insurer or broker goes bust consumers will be able to put in a claim to the Financial Services Compensation Scheme (FSCS).
However, regulation of insurance is proving a huge task both for the firms involved and the FSA.
From Friday, the FSA will see the number of firms and individuals it regulates increase by more than 37,000.
Waking up
The reforms will see multi-national insurers, brokerage firms, motor traders offering car warranty packages and even pet shops selling pet insurance come under the regulatory control of the FSA, and firms will have to be authorised to trade.
 Even insuring your pooch will be regulated |
"The large insurers and our members are up to speed and ready for FSA regulation," Mr Galbraith said.
"However, many businesses that sell insurance products as an add-on are just waking up to the fact that they are about to be regulated."
Last month, accountancy firm Grant Thornton found that 40% of companies that sold insurance as a sideline had not yet applied for authorisation.
The FSA told BBC News that between 3,000 and 4,000 businesses that currently sell insurance have as yet not applied to them for authorisation.
Many of the businesses set to miss Friday's deadline are motor traders.
They need FSA authorisation to offer car warranties and sell payment protection insurance on loans.
"Many small traders can not afford the estimated �3,000 to �10,000 cost of getting ready for regulation and have decided to stay on the sidelines," Louise Wallace, spokeswoman for the Retail Motor Industry Federation, told BBC News.
"Without authorisation, traders will offer warranties under which they act as guarantor, rather than a large insurance firm. What happens to the warranty if the trader goes bust?"
"Consumers will enjoy less protection because of this unnecessary, gold plated regulation."
Consumer confusion
In response, an FSA spokeswoman said: "We think that the requirements on firms are proportionate as are the costs."
"Just �2.80 will be added to the annual cost of an insurance policy."
As for the firms being put off selling insurance, the FSA said it had taken steps to ease their burden.
Businesses will be able to carry on selling insurance provided that they have submitted an application to the FSA for authorisation by Friday.
|  The advice is only buy from an insurer that is fully FSA authorised |
But businesses that fail to get in their applications by Friday will not be allowed to offer insurance.
However, the FSA has decided that consumers that buy insurance from firms awaiting authorisation won't have access to the industry compensation scheme.
The FSA defended its decision on the grounds that the scheme was funded by authorised firms and it would be unfair on them to pay to solve problems with unauthorised firms.
"This state of affairs is far from ideal and is bound to lead to consumer confusion, the advice is only buy from an insurer that is fully FSA authorised," Matthew Brown, senior researcher at Which? formerly the Consumers' Association.
As for the regulation itself, Mr Brown welcomes it but with one major caveat.
"The decision not to regulate holiday insurance sold by travel agents is bizarre."
"85% of people buying package holidays purchase their insurance from the travel agents... often policies are overpriced and staff selling them poorly trained."
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