The Insurance Distribution Directive (IDD) There are 19 slides in this module and you may wish allow around 30 minutes for study There is no restriction on how many times you can review this module At the end of this module is a link to a short test lasting a maximum duration of 20 minutes. However, the test can also be taken at another time if you prefer.
Introduction Welcome to the staff training for: The Insurance Distribution Directive (IDD) Purpose To provide you with training regarding The Insurance Distribution Directive (IDD)
The Insurance Distribution Directive (IDD) The Insurance Distribution Directive (IDD) comes into effect on 1st October2018 replacing the Insurance Mediation Directive (IMD) The IDD aims to enhance consumer protection when buying insurance (including non-investment insurance, life insurance) and to support competition between insurance distributors by creating a level playing field
Who does the IDD apply to? The IDD applies to all firms who conduct insurance distribution with clients. This includes firms who sell, advise on, or conclude insurance contracts and those who assist in administering or performing insurance contracts. As such, firms who provide advice or services in relation to non-investment protection products (e.g. term assurance plans) and general insurance contracts (e.g. house insurance) will be captured by IDD. It applies in respect of both retail and commercial customers.
Employee knowledge and competence All insurance distributors and their employees must have the appropriate knowledge and ability to perform their roles These new rules apply to employees who are either directly involved in carrying out the firm s insurance distribution activities, supervisors of those employees and those within the management structure with responsibility for the firm s insurance distribution activities The IDD set outs (at a high level) the areas of knowledge and ability which employees should possess, including the minimum product knowledge and knowledge of the claims process.
Employee knowledge and competence continued A new CPD requirement of a minimum of 15 hours within the 12 month period. The IDD does not prescribe whether the CPD should be structured or unstructured and firms will need to consider what is most appropriate to ensure that their employees have the required knowledge and competence, taking into account their role, activities and the type and nature of the products transacted. Records in relation to training and competence (including CPD) should be retained for 3 years
Professional Indemnity Insurance (PII) The minimum levels of cover will be increased from: 1. for a single claim, 1,120,200; and 2. in aggregate, 1,680,300 or, if higher, 10% of annual income up to 30 million To: 1. 1,250,000 applying per claim per year, and 2. 1,850,000 per year in aggregate for all claims, or if higher, 10% of annual income up to 30 million
Complaints handling The FCA intends to rely on the current rules in place with the exception of minor amendments affecting insurance distribution business conducted by EEA branches of UK firms.
Insurance Conduct of Business (ICOBS) Insurance distributors must act honestly, fairly and professionally in the best interests of their clients (the customer s best interests rule ) Firms must communicate in a way that is clear, fair and not misleading. All marketing/promotional communications must be clearly identifiable as such Remuneration and performance management practices that would conflict with the customer s best interest rule are prohibited. ICOBS rules will now apply to insurance distribution intermediaries, irrespective of whether they are in contact with the client (i.e. in a chain).
Insurance Conduct of Business (ICOBS) The pre-contract disclosures are enhanced: Firms must disclose whether they are an insurer or an intermediary Firms must disclose whether or not they provide advice Intermediaries must disclose whether they act for the customer or the insurer. (Care should be taken here as the intermediary may act for both the insurer and the client at different times, depending on the activities being undertaken. For example, a firm may act for the client when sourcing a product but for the insurer in the event of a claim and, in such cases, the firm should ensure that the disclosure is made in a way that is useful to the client.)
Insurance Conduct of Business (ICOBS) Continued Conflicts of interest and transparency disclosures are enhanced: Intermediaries must disclose if they have 10% or more voting rights or capital in an insurer or vice versa Intermediaries must disclose if they give advice based on a fair and personal analysis of the market Where an intermediary is contractually bound to place business with a specific insurer or insurers it must provide the names of these insurers Where an intermediary is not contractually bound to place business with specific insurers but does not provide advice on the basis of a fair and personal analysis of the market it must name the insurers with whom it may place business. (Currently this only needs to be provided upon request)
Insurance Conduct of Business (ICOBS) Continued Conflicts of interest and transparency disclosures are enhanced continued: Firms will be required to disclose the nature and basis of the remuneration they receive in relation to the insurance contract i.e. firms will need to disclose the type and source of their remuneration Information provided to clients must be clear and accessible, on paper and provided free of charge. However, it can be provided electronically, or by other means, but the client would need to choose the alternative option.
Insurance Conduct of Business (ICOBS) Continued Conflicts of interest and transparency disclosures are enhanced continued: Firms will be required to disclose the nature and basis of the remuneration they receive in relation to the insurance contract i.e. firms will need to disclose the type and source of their remuneration Information provided to clients must be clear and accessible, on paper and provided free of charge. However, it can be provided electronically, or by other means, but the client would need to choose the alternative option.
The standards to advised and non-advised sales are enhanced: Insurance Conduct of Business (ICOBS) Continued A new explicit rule to reinforce the requirement for all proposed contracts to be consistent with the customer s demands and needs, irrespective of whether the sale is advised or non-advised In relation to advised sales, a new requirement to provide a personalised explanation of why the proposed product best meets the client s needs is introduced
Knowledge and ability requirements The FCA has set out the minimum knowledge requirements for conducting insurance distribution activities in its SYSC rule book. A firm is required to: Ensure that it, and each relevant employee, possesses appropriate knowledge and ability in order to complete their tasks and perform their duties adequately. Ensure that it, and each relevant employee, complies with continued professional training and development requirements in order to maintain an adequate level of performance corresponding to the role they perform and the relevant market Ensure that each relevant employee completes a minimum of 15 hours of professional training or development (CPD) in each 12-month period, taking into account the role and activity carried out by the individual and the type of distribution and nature of the products sold.
Specific knowledge requirements general insurance contracts is required to demonstrate compliance with the following professional knowledge and competence requirements in relation to the relevant individuals: a) Minimum necessary knowledge of terms and conditions of policies offered, including ancillary risks covered by such policies b) Minimum necessary knowledge of applicable laws governing the distribution of insurance products, such as consumer protection law, relevant tax law and relevant social and labour law c) Minimum necessary knowledge of claims handling d) Minimum necessary knowledge of complaints handling e) Minimum necessary knowledge if assessing customer needs f) Minimum necessary knowledge of the insurance market g) Minimum necessary knowledge of business ethics standards h) Minimum necessary financial competence
Specific knowledge requirements long-term insurance contracts A firm will be required to demonstrate compliance with the following professional knowledge and competence requirements in relation to the relevant individuals: a) Minimum necessary knowledge of policies including the terms, conditions, the guaranteed benefits and, where applicable, ancillary risks b) Minimum necessary knowledge of organisation and benefits guaranteed by the pension system of the relevant Member State c) Knowledge of applicable insurance contract law, consumer protection law, data protection law, anti-money laundering law and, where applicable, relevant tax law and relevant social and labour law d) Minimum necessary knowledge of insurance and other relevant financial services markets e) Minimum necessary knowledge of complaints handling f) Minimum necessary knowledge of assessing consumer needs g) Conflict of interest management h) Minimum necessary knowledge of business ethics standards i) Minimum necessary financial competence
Record keeping requirements The IDD introduces a number of new record keeping requirements whereby we must: Establish, maintain and keep appropriate records to demonstrate compliance Be in a position to provide the FCA, upon request, the name of the person responsible for the record keeping requirements Make an up-to-date record of the CPD completed by each relevant individual in each 12 month period Retain CPD records for a minimum of 3 years after the relevant individual stops conducting insurance distribution activity Be in a position to provide the records to the FCA upon request NOT prevent a relevant individual from obtaining a copy of their CPD record
and finally Thank you for taking the time to read this training module. I hope you found it informative. It is important that knowledge retention is evidenced and a short test based on this module has been constructed. You will need to register with your name and email address. The test can also be taken later and a link to this can be found on the Portal. https://am-tc.co.uk To take the test NOW please follow this link: https://www.am-tc.co.uk/idd.php In the meantime if you have any questions please do not hesitate to contact me on ray@absolutemoney.co.uk or telephone 07973 824443 Again, many thanks for your time - Ray.