The Insurance Distribution Directive (not to be confused with the Initial Disclosure Document!) will replace the Insurance Mediation Directive (IMD) which was introduced in 2005. The IMD was designed to enhance consumer protection and promote competition between insurance firms across the European Union. The IDD has a wider application and aims to strengthen and consolidate the existing IMD rules. The first of two FCA consultation papers (CP) setting out the proposals for implementing the IDD was published in March 2017, with a second to follow in September 2017.
Firms will need to implement the IDD by the 23rd February 2018.
What are the most relevant people proposals?
There are requirements around pre-contract information disclosures and general principles of conduct. These cover conflicts of interest and transparency, complaints, advice or information and remuneration and fees; including the definition of ‘durable medium’.
Advised and non-advised sales standards.
These build on the existing Insurance Conduct of Business Sourcebook (ICOBS) and require staff to take an active role in identifying a customer’s demands and needs ‘through asking questions’, with firms only offering a contract that meets those demands and needs.
For advised sales a ‘personalised explanation’ should also be provided, illustrating why the proposed product meets those needs.
There are amendments to sales practices for those firms who cross-sell insurance alongside or in connection with other goods or services.
The current Dispute Resolution Complaints Sourcebook (DISP) rules requiring firms to have complaints handling procedures in place is being extended to all insurance and reinsurance distributors when carrying out distribution activities.
Firms will be required to comply by 23rd February 2018 and therefore cannot afford to delay action
For those readers who are responsible for T&C frameworks, these proposals may be of most interest.
All staff involved in insurance and reinsurance distribution must have the appropriate knowledge and ability to perform their duties. The completion of at least 15 hours continuing professional development (CPD) each year will be introduced for all relevant employees. These include employees currently not subject to the existing TC Sourcebook (broadly those that don’t provide advice on insurance contracts) and those subject to the existing CPD requirements, some of whom might be Retail Investment Advisers (where the composition of 35 hours CPD must change).
A new chapter is to be added to Senior Management Arrangements, Systems and Controls (SYSC) which defines the minimum knowledge and ability requirements dependant on the type of insurance sold, for both the seller and those supervising. For example, minimum requirements for those selling general insurance include; policies offered, governing laws, claims and complaints handling, assessing needs, insurance market, business ethics and financial competence.
Record keeping requirements are also proposed in order that compliance with these rules can be demonstrated for at least 3 years after the individual ceases this activity.
So what should firms do next?
Firms will be required to comply by 23rd February 2018 and therefore cannot afford to delay action. Despite currently being a CP, the policy statement is due in quarter 3, with a second CP to be published later this year.
Any firm affected by the IDD will swiftly need to review its content thoroughly and assess, what, if any changes are required to their processes and the timeline required to deliver associated training.
The professional requirements will certainly require greater strategic consideration to be given to developing policy and frameworks, as well as bridging any identified gaps in minimum knowledge levels. Furthermore firms should not underestimate the proposed record keeping necessary to evidence compliance, particularly since system delivered solutions can be all consuming.
Taking into account the foregoing, I recommend the IDD contents are immediately reviewed, a high level gap analysis undertaken against the proposals and a plan of implementation designed; noting of course that it may be subject to change during 2017.