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Warranty rule raises fears

News - Trade bodies seek dispensation from new directive preventing firms offering insurance-backed warranties

LEADING trade associations have raised the alarm over a new European directive preventing thousands of member firms from offering insurance-backed warranties to customers.

Bodies including the Federation of Master Builders, the Electrical Contractors Association and the Heating and Ventilating Contractors Association are in talks with the Financial Services Authority ahead of the UK's adoption of the European insurance mediation directive in January.

The directive would prevent small businesses from offering warranties because under the directive they would be classed as 'intermediaries'and subject to a raft of new regulations.

Individual builders offering insurance-backed warranties would be subject to the FSA's heavily involved regulatory process.They would have to gain a host of professional qualifications, as well as obtain professional indemnity cover for up to £670,000.

They could only provide warranties to customers if they were an authorised representative of the insurance company behind them - which would have to take full responsibility for their actions and monitor them.

ECIC business development manager Richard Forest-Smith, who insures most of the ECA's members as well as the Government's Quality Mark scheme, said:

'The main issue is that the FSA has interpreted the directive in quite a broad sense, which is going to affect an awful lot of trade associations.

'We are involved in discussions with the FSA and are looking to see whether we can agree a dispensation with them to allow our activities to continue.'

If no agreement is reached, individual firms will have to take on the role of 'introducers'- handing customers leaflets on warranty schemes without being able to encourage them to take them up - to avoid breaking the law by being an unqualified 'intermediary'.

Trade associations and insurers could have to lay out hundreds of thousands of pounds on promotional material and a call-centre to deal with warranty inquiries and claims on a case-by-case basis.

Mr Forest Smith added: 'Unless we get the dispensation our administration costs, which are currently minimal, will shoot up and this cost will be passed on to the consumer.

'Otherwise we won't be able to offer warranties.'