You've got new rights on insurance, if your broker isn't breaking all the rules

Sam Dunn asks if tighter regulation of how cover is sold will lead to better deals

Would you buy insurance from a law breaker? Not knowingly, but changes to the way we buy policies could mean your broker is acting illegally - and leave you unprotected in the event of a problem or disputed claim.

From Friday, insurance ranging from basic car and life cover to income protection and critical illness policies will be newly regulated by the Financial Services Authority (FSA), the City watchdog. It will be a criminal offence for anyone to try to sell insurance without its authorisation after 14 January, with the exception of that sold through travel agents and electrical goods with their own warranty protection.

And it isn't just insurance brokers, advisers and salesmen who will be affected: your local vet or car dealer, selling insurance on top of their main business, will also need to be authorised.

Rules are being tightened to give consumers greater protection and transparency. Sellers will now have to provide a "key facts" document, allowing easier comparison of policy exclusions and premiums, and follow scripted questions during the sales process. Crucially, you will also have redress to the Financial Ombudsman Service (FOS) if you discover that you were sold an unsuitable policy and believe you have a potential mis-selling claim.

To this end, if you buy a critical illness policy with sales advice, you'll be handed a "demands and needs" statement setting out what you were looking for, the advice you were given and the details of the policy bought. You will also have a 30-day "cooling-off" period in which you are allowed to change your mind.

If you are buying a car, travel or home insurance policy, things probably won't feel much different under the new regime. These products are bought without the need for advice and can be easily compared. But there will be small changes. For example, in the case of travel insurance bought over the phone, staff will have to give more details about policy exclusions.

The real aim of the regulation, however, is to offer consumers a better deal on policies such as critical illness and income protection, which usually need sales advice and carry exclusions.

"If you take advice and the salesman recommends a policy that turns out to be unsuitable - it won't pay out for a later claim, say - then you can go to the FOS," says Tereza Fritz of consumer body Which?.

In particular, it is hoped customers will be in a better position to decide whether they need to take out payment protection on unsecured personal loans. This expensive insurance is designed to pay out if illness or unemployment leaves you unable to meet your repayments, and often adds 20 per cent to the overall cost. Heavily plugged by commission-hungry sales staff, it has often been sold to customers who have little need of it - those, for instance, who have decent sickness protection with their employer.

Despite welcoming the new system, Which? believes the new rules don't go far enough. There is particular concern about a complex product such as income protection "simply being lumped in with car and housing insurance", in the words of Ms Fritz. Which? fears consumers could still be "coaxed into purchasing products they don't need".

Not all of Britain's insurance brokers and intermediaries have been granted authorisation by the FSA. Some haven't applied and some have been turned down. In the latter case, the FSA has given "interim authorisation" to those appealing against its decision. These firms have to tell you they are trading on an interim basis and that, if they fail to secure full authorisation and go out of business, you won't be entitled to any compensation.

"There's no reason to go to an interim-authorised broker when there are buckets of fully author- ised ones out there," says Ms Fritz.

If you're buying a policy such as income protection, decide if you really need advice before visiting a broker. You can do your own research by phoning insurers direct or using financial websites to get a better idea of what you're buying.