What’s The Insurance Distribution Directive 2018 all about?
The 1st October saw the implementation of the Insurance Distribution Directive 2018. I may be wrong, but it seemed to pass by without much anticipation or panic ……. is this perhaps an indication that many firms have done nothing about it?
The Insurance Distribution Directive 2018 replaced the Insurance Mediation Directive (IMD) but you’d be wrong to assume that this is simply an update of the Insurance Mediation Directive and that you don’t need to do anything. If you’re caught by the Insurance Distribution Directive 2018 – there’s actually quite significant differences that your firm will need to address.
Does the Insurance Distribution Directive 2018 affect my firm?
It applies to your firm if you carry on insurance distribution activities as an Exempt Professional Firm (EPF). The SRA guidance defines ‘insurance distribution’ as:
‘the activities of advising on, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim.’
One marked difference is the exclusion of ‘introducing’ – IMD specially included ‘introducing’ so many firms were caught by the regime by referring or introducing a client to an insurance provider.
In the Insurance Distribution Directive 2018, the definition of insurance distribution does not include ‘introducing’. So if you are merely introducing a client to an insurance provider then you are not caught by the act, but you will have to meet the two conditions in the Insurance Distribution Directive 2018’s criteria, namely:
- you are merely providing information about an insurance (or reinsurance) product, intermediary, or provider to potential policyholders, and
- you do not take any additional steps to assist in the conclusion of the contract of insurance.
The Insurance Distribution Directive 2018 applies to my firm. What should I do?
First things first, check that you are on the FCA register as an EPF. If you are not on there and should be then you will need to submit an FA8 form to the SRA – they will then provide the FCA with the information required for the register.
What are the specific requirements of the Insurance Distribution Directive 2018?
The main objective of the Insurance Distribution Directive 2018 is to provide greater consumer protection, so the requirements reflect this main objective:
Insurance Distribution Officer – you must appoint an officer responsible for distribution activities, they must be within the management of the firm and will be responsible for the insurance distribution activities.
Professional Development – everyone directly involved in insurance distribution activities (including managers) must have the appropriate knowledge and ability to perform their duties. This should include training, and for solicitors this should form part of your continuing competence. A good starting point is the FCA requirement (although not mandatory), in that relevant staff should have knowledge of:
- the terms and conditions of policies offered,
- laws covering the distribution of insurance products,
- claims and complaints handing requirements,
- how to assess a customer’s needs.
Staff screening – you need to be satisfied that staff involved in ID activities are of good repute which means:
- a clean criminal record (or other national equivalent),
- have not previously been declared bankrupt (which should involve DBS checks and a search of the bankruptcy and insolvency register).
More information to consumers – Rule 3 of the SRA Financial Services (Conduct of Business) Rules 2001 (COB rules) sets out the information you must provide as follows:
- Regulatory disclosure – that you are regulated by the SRA and that you carry on insurance distribution activities limited to those not prohibited by the Scope Rules. You should also state that you are not authorised by the FCA and are registered as an EPF.
- Information confirming:
- that you are an insurance intermediary rather than an insurer,
- whether you are providing a personal recommendation in respect of the insurance product,
- whether you act on behalf of the client or the insurer and if both explain how you can act for both parties,
- declare if you have 10% or more of the voting rights in an insurer.
Remuneration – you must provide clients will full details of any remuneration you may receive for arranging the insurance and fee that may be payable to the client along with the nature and basis of remuneration you receive. Any fee collected from client must be disclosed exactly or, if unknown, the calculation that will be used to determine the amount payable.
Acting honestly and fairly in the client’s best interest – a requirement of the code of conduct in any event! But the The Insurance Distribution Directive 2018 introduces this new requirement and you need to retain all documentary evidence to illustrate that you have met this requirement.
Demands and Needs – a demands and needs statement was of course a requirement of the IMD, the Insurance Distribution Directive 2018 makes the following changes:
- a new requirement that all contracts proposed must be consistent with the client’s demands and needs,
- if you are advising on a product then you must provide personalised recommendation explaining why the product is recommended to that particular client,
- Insurance Product Information Document (IPID) must be provided to the client. This will include key information about the product and will be drawn up by the insurer.
If you are caught by the Insurance Distribution Directive 2018 and it has passed you by so far, take action ASAP! You can see that there are quite a few changes which you will need to address.