Are you Ready for the Insurance Distribution Directive (IDD)?
What is the Insurance Distribution Directive?
The Insurance Distribution Directive or IDD for short is the new European Union directive covering the sale and advice of insurance products. It is mainly focused on the general insurance profession. This replaces the Insurance Mediation Directive which was published on 14 January 2003 and formed the basis of general insurance regulations by the FSA, which came into effect in the UK on 14 January 2005.
The updates are extensive and this is in recognition that the the world has moved on somewhat and the regulatory landscape needed to be updated to reflect current requirements.
When?
EU countries are required to transpose IDD into national law by 1 July 2018. However the European Commission has proposed pushed back the application date until 1 October 2018.
What?
As well as bringing the regulations up to date, it also aims to create more of a level playing field between the various providers of insurance whether producers or distributors.
Who?
It affects everybody within the general insurance sector, insurers, wholesalers, MGA’s and insurance brokers and intermediaries whether or not insurance is their full-time role. For those secondary markets where insurance is not full time, (such as motor traders, retailers and travel agents for example) we will see a significant increase in regulation to bring them more fully into the regulatory perimeter and improve customer protection, which after all is one of the FCA’s main objectives. The Secondary market is now retitled “Ancillary Insurance Intermediaries” or AII.
What has the FCA done so far?
The FCA had split the topic into three, which means that we have seen three different consultation papers which set out the FCA’s proposals.
The first set out the main changes which will impact on the day to day processes, the second looked broadly at the Insurance Product Information Document or IPID (a replacement for Key Facts within general insurance, and only for consumers (i.e. domestic customers) therefore excludes commercial customers) and the third covered remaining matters such as conflicts.
The FCA has now issued all three Policy statements from the first major consultation.
What are the main areas to consider?
Training & Competence - apply new knowledge and competence requirements included minimum CPD requirements for staff.
Customers’ best interests and conflicts of interest – updated policies and procedures required
Disclosure – updated sales scripts/materials required, in particular to allow for remuneration disclosure and the Insurance Product Information Document (IPID)
Financial Promotions – any marketing materials must be clearly identifiable as such
Products Governance – “Manufacturers” of insurance products must meet detailed requirements and provide distributors with the necessary information. Firms’ distribution arrangements must meet specific criteria.
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