The Insurance Mediation Directive (IMD) that has been with us for nearly 13 years is being replaced in the UK by the Insurance Distribution Directive (IDD) on 23 February 2018.
The IDD is European legislation that promotes common practices across Europe. Member states can set enhanced standards if desired.
The FCA has issued one of the proposed IDD policy statements PS 17/21 covering professional and organisational requirements, conduct of business requirements, complaints and out-of-court redress.
Further policy is expected to be issued in December.
See below for a brief summary of the IDD and how it will affect a typical insurance intermediary:
- the IDD requires firms to ‘have the appropriate knowledge and ability to perform their roles’;
- the requirement is to complete at least 15 hours of professional training or development (CPD) in each 12 month period;
- all intermediaries should have in place professional indemnity insurance with the minimum annual cover levels of €1,250,000 per claim and €1,850,000 aggregate;
The IDD general principles for business state:
- ‘firms must act honestly, fairly and professionally in accordance with their customers’ best interests;
- firms must communicate in a way which is clear, fair and not misleading. Marketing materials must be clearly identifiable as such;
- remuneration of a firm or its employees, and performance management of employees, must not conflict with the duty to act in in accordance with their customers’ best interests’.
Changes to ICOBS Business standards:
- 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;
- intermediaries must make disclosures about shareholding links between the intermediary and any insurers;
- where intermediaries do not provide advice on the basis of a fair and personal analysis of the market, they must disclose the names of insurers with whom they may place business;
- intermediaries must disclose the nature of their remuneration in relation to the insurance contract and whether they work on the basis of a fee, commission or some other form of remuneration (or a combination thereof);
- all firms must disclose fees payable by the customer in cash terms; this includes fees which may become payable (such as for mid-term adjustments);
- information must be made available on paper or in a durable medium where the customer chooses and must be free of charge;
- all contracts proposed must be consistent with the customer’s demands and needs, for both advised and non-advised sales;
- firms who advise must provide a personalised recommendation explaining why the product recommended best meets the customer’s needs;
- where insurance is ancillary to other goods or services, the insurance must not be compulsory; the customer must be able to purchase the goods or services without the insurance.
There is also further information for firms where the principal professional activity of a firm is not insurance distribution, for example, a motor garage or mobile phone retailer; these are referred to as Ancillary Insurance Intermediaries (AII). If you are one of these firms you should read chapter 6 of the policy statement.