Insurance Distribution Directive
The Insurance Distribution Directive is EU legislation, which sets regulatory requirements for firms designing and selling insurance products.
The Insurance Distribution Directive (IDD) replaces the Insurance Mediation Directive (IMD). It aims to enhance consumer protection when buying insurance – including general insurance – and to support competition between insurance distributors by creating a level playing field.
Like the IMD, the IDD covers the authorisation, passporting arrangements and regulatory requirements for insurance intermediaries.However, the application of the IDD is wider, covering organisational and conduct of business requirements and introducing requirements in new areas, including product oversight and governance.
The Insurance Distribution Directive is effective from 1 October 2018.It brings in some fundamental changes to the rules surrounding insurance distribution within the UK and applies to any firm that sells, advises on or concludes insurance contracts.
The following link allows you to view the FCA handbook, as it will look at 1 October 2018, including all the changes brought about by the Insurance Distribution Directive: https://www.handbook.fca.org.uk/handbook?date=01-10-2018&timeline=True.This link may be of interest to the person responsible for compliance within your business.
This document is designed to provide an overview of the changes the IDD brings about.It does not encompass full details of all of the new rules and should be read in conjunction with the FCA’s handbook.
Car Care Plan is committed to helping its partners establish compliance with the new requirements.If we can be of any assistance, or if you have any questions, please do not hesitate to contact us via email to Compliance@CarCarePlan.co.uk.
If you are directly authorised by the FCA, you will need to ensure your processes and controls are reviewed in line with the FCA’s new or updated rules.
Alternatively, if you are an appointed representative then you should be receiving further guidance from your principal firm on their expectations surrounding the new or updated rules.
Continuing Professional Development
The Directive introduces the requirement for all staff involved in the distribution of insurance to undergo a minimum of 15 hours Continuing Professional Development (CPD) per annum.
Under the new rules, firms must, including in relation to the relevant employee, demonstrate compliance with the following professional knowledge and competence requirements:
This CPD could include e-learning modules, classroom based training, individual coaching and development, on-line product knowledge assessments, external training, conferences etc.
The key is to establish appropriate systems and processes to log the development and to ensure that any individual that has not completed the required 15 hours CPD in a 12-month period is stopped from conducting insurance distribution activities until the CPD requirement is achieved.
The relevant section of the FCA handbook can be accessed here: https://www.handbook.fca.org.uk/handbook/TC/4/2.html?date=2018-10-01
The immediate challenges
The Insurance Product Information Document
The Insurance Distribution Directive introduces a new document, called the Insurance Product Information Document (IPID).
The requirements of the IPID are set out in the FCA’s handbook and can be found via the following link: https://www.handbook.fca.org.uk/handbook/ICOBS/6/Annex3.html?date=2018-10-01
The IPID replaces the current Policy Summary Document, which is commonly used within the Motor industry when selling insurance products. However, as the IPID is a document that has to follow a prescribed format and include specific information, you may still decide to use a summary document or sales leaflet to provide consumers with additional information.
The IPID must contain:
Each section should be headed by icons or symbols visually representing the content of the respective section heading.
Car Care Plan has completed IPID templates for all products.These will have to be used for all product sales from 1 October 2018, but can be introduced sooner.Please speak to your usual Car Care Plan contact about when and how to introduce the IPID.
*Please note – an IPID must be provided for each insurance product being offered. For example, CTI Warranty and Roadside Assistance would require 2 separate IPIDs.
What does an IPID look like?
Information about the firm, its services and remuneration
The Insurance Distribution Directive brings in new requirements surrounding the information you provide to your customers about your firm, the services you offer and how you are remunerated.The full information can be found via the following link:
Although it is no longer a prescribed form, many retailers still use an Initial Disclosure Document to provide the customer with the required information.
From 1 October 2018, you should ensure that, prior to the conclusion of a contract of insurance; the customer is provided information on:
Example wording regarding fee / commission:
This product is provided to us by the insurer for a net premium.The difference between the retail price you pay for this product and the net premium, less any applicable taxes, is retained as commission by the parties involved with the supply of this product.
We remunerate our employees using a combination of fixed and variable rewards that are designed to ensure they act in customers’ best interests at all times. All employees receive a base salary and our sales people also receive variable financial rewards based on the insurance policies they process, providing they also achieve high levels of customer service
Advised and Non-Advised Sales
The Directive also brings in some changes to the standards for advised and non-advised sales.
Post 1 October 2018 Example
Based on your demands and needs, I recommend that you purchase Asset Protection Insurance to provide protection in the event your vehicle is written off by your motor insurer.
Based on your demands and needs, I recommend that you purchase Asset Protection Insurance to provide protection in the event your vehicle is written off by your motor insurer.This best meets your needs as you have highlighted that you would like to be in the position to purchase a replacement vehicle of similar quality should your current car be written off.
The following links provide further information on the requirements surrounding advised and non-advised sales:
Product Manufacturer Responsibilities
The Insurance Distribution Directive requirements has meant that the FCA has introduced a completely new section to its handbook, called PROD, which can be found via this link: https://www.handbook.fca.org.uk/handbook/PROD/4/1.html?date=2018-10-01
PROD stipulates the rules surrounding product governance: including the design, approval and testing of products, identifying the target market, assessing distribution channels and monitoring product performance.The rules are intended to ensure that firms are offering products that are designed with the consumer in mind and provide appropriate protection for consumers.
It is likely that for the majority of products, the parties will agree that Car Care Plan and the client are all involved in the manufacture of the product.This means that the parties will have to sign a co-manufacturer agreement; stipulating which element of the product manufacture responsibilities each party is responsible for:
Car Care Plan intends to introduce a new standard Terms of Business Agreement with all dealers in Q4 2018 to cover off the product manufacturer responsibilities and general Insurance Distribution Directive requirements.
Professional Requirements – Good Repute
Another requirement of the Insurance Distribution Directive isthat firms must establish (on reasonable grounds) that all the persons in its management structure and any staff directly involved in insurance distribution activity are of good repute.
The rules state that in considering a person’s repute, the firm must at a minimum ensure that the person:
Firms should give particular consideration to offences of dishonesty, fraud, financial crime or other offences under legislation relating to banking and financial services, companies, insurance and consumer protection.
Firms will need to ascertain which employees are included in this assessment and as a minimum:
Customer Best Interest Rule
Conduct of Business requirements – general principles including acting in customers’ best interests
The IDD requires that distributors must always act honestly, fairly and professionally in accordance with the best interests of their customers. This is not just about acting in the customers’ best interests, but also being able to demonstrate that you are doing that. The FCA has confirmed that the "customers' best interests" applies to all firms in the distribution chain. This means that even firms in the middle of a distribution chain will have to meet and be able to demonstrate that they are meeting this principle.