Here we take a look at the Insurance Distribution Directive and what it means to businesses.As you know, the Insurance Distribution Directive (IDD) came into force on 1 st October 2018 and replaced the Insurance Mediation Directive (IMD). The IMD came into force in January 2005 with the objective of protecting consumers by regulating intermediaries.
The IDD takes this regulation further and is designed to:
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The overriding aim of the IDD is to ensure that all parties in the insurance distribution chain act professionally, honestly, fairly and in the best interests of their clients. The IDD covers non-life products such as household and motor policies and non- investment life products, like term assurance. It also impacts reinsurance activities and insurance-based investment products; like maximum investment plans or endowment policies. Certain activities conducted through price comparison websites are also captured by the IDD.The main changes brought about by the IDD are to do with:
Training and competence – The IDD require firms to (and the wording is) ‘possess appropriate knowledge and ability in order to complete their tasks and perform their duties adequately’. To demonstrate this, staff will be required to undertake at least 15 hours continuing professional development (CPD) per year and firms are expected to keep records of the activities undertaken.
Product governance – changes brought about by the IDD include:
• the requirement for enhanced product development procedures;
• periodic review of the performance of products; and
• requirements to be clear about the intended target market for the product, these will largely be in line with the FCA’s existing product governance requirements.
Documentation – the IDD introduces a new summary document, the “Insurance Product Information Document” (IPID). General insurance firms (in the retail and small corporate market) will need to provide customers with Insurance Product Information Document in a prescribed format (like Key Facts documents).
Regarding Conduct – there are two new obligations for insurance distributors with the focus on consumer protection:
• to act “honestly, fairly and professionally in accordance with the best interests of the customer” and
• that all information provided to customers is “fair, clear and not misleading”These are similar to the FCA’s principles for business:
A new Insurance Product Information Document (IPID) is introduced that has a prescribed format and is envisioned to be no more than 2 sides of A4. It is designed as a simple, standardised document which aims to provide clearer information for consumers about non-life insurance products so that they can make more informed decisions prior to purchase and simplify comparing the products of different providers. It will be produced by the product manufacturer and is for retail clients only. It links to the policy summary and highlights the salient points of the contract with the features and risks. It must be issued to the client before the contract is completed. The IDD extends the existing ICOBS standards for advised and non-advised sales. All firms are required to identify their customers’ insurance demands and needs and ensure that insurance contracts proposed are consistent with them. Where a firm provides advice, it must explain why a contract best meets the customer’s needs.
All firms are required to:
• identify their customers’ insurance demands and needs; and
• ensure that insurance contracts proposed are consistent with them
The IDD also makes it clear that firms need to specify the customer’s insurance demands and needs based on information obtained by the firm from the customer. In other words, you must work with your customers to ask questions to identify their demands and needs.There is no mandatory qualification required by staff advising or selling insurance products unlike investment advisers who require a level 4 qualification and a Statement of Professional Standing (an SPS) that is annually renewed.
The IDD, however, requires firms to ‘possess appropriate knowledge and ability in order to complete their tasks and perform their duties adequately’.
To demonstrate this, staff will be required to undertake at least 15 hours continuing professional development per year and keep records of the activity you undertake.
These become rules rather than guidance under the IDD. And although they apply to manufacturers of insurance products rather than distributors, distributors need to ensure that they are aware of the intended target market for the product and this needs to be clearly articulated by the manufacturer.
Manufacturers must develop or enhance their approval process for new products, identify the target market and develop a distribution strategy to aim the product at the intended consumers.
Any marketing documentation issued to intermediaries must clearly articulate the target market which will help fulfil the obligation that manufacturers must take reasonable steps to ensure the product is only distributed to those consumers for whom they are intended.
Learning Pool helps by delivering online training that engages and educates learners in a truly memorable way; ensuring that your colleagues remember key points of understanding and make the right decisions that protect your company and your customers. All our content is written by Searchlight Solutions, the UK’s leading provider of training to the insurance and financial services sector.
We’ve combined their specialist know-how on regulatory compliance and risk management with our skills and tools to create our financial services catalogue which includes everything you need to train your staff on IDD as well as other key financial services categories such as SM&CR, CASS, Conduct Risk and Cryptocurrencies
To find out more about getting your staff ready for IDD, contact us and get your 7 day free trial.
For further reading, why not check out our blog on the Senior Manager & Certification Regime.
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